Normally NAB’s business survey generates little in the way of controversy. NAB, competing banks and government agencies use the survey results in conjunction with other information to model forecasts for the Australian economy. This latest release of the July survey is different. At first glance, chief economist Alan Oster’s change of view with regards to RBA target rate just puts him in the same league as more than a few of his peers. The NAB chief economist now expects the RBA to cut rates two more times next year. “To stabilise the unemployment rate (at around 5½%) we expect the RBA will feel the need to provide further medium term support through two more 25bp cuts in May and August 2017 (to a new low of 1%).”
What comes next is a little more radical and it follows an ANZ Research note by Felicity Emmett late last week in which she speculated the RBA would consider “unconventional” policies should the official rate approach 1%. “RBA Assistant Governor (Economics) Kent has emphasised that unconventional policies would be reactive to symptoms of economic stress and that the likelihood of using such options was ‘very remote’, but we are much less sure given the cash rate is now close to the RBA’s 1% floor.” The NAB economist now seems to have joined in with the speculation going on at ANZ. “And thereafter raises the prospect of the RBA considering the use of non-conventional monetary policy measures.” Widely known as “quantitative easing” or more colloquially, money printing, the prospect of the RBA buying bonds in return for cash is not something mentioned with any seriousness until now. Whether either economist thinks such a path would be a good idea is not stated.