The firm expects the RBA to consider QE in 2020


In their latest note, the firm argues that the RBA will probably cut rates once more - likely in February - to bring the cash rate to 0.50% before considering QE next.

Adding that the RBA has already provided more strident forward guidance and is likely to deploy increased liquidity measures and targeted term lending before resorting to asset purchases as their next course of action.

That said, a formal QE package that includes asset purchases isn't in the BofAML's central case for 2020 but notes it could be a possibility as they believe that negative rates are likely to be the RBA's least preferred option.

This is still very much a theoretical discussion at this stage as the RBA is still just mulling further cuts to its cash rate for now.

QE will certainly be on the agenda if the Australian economy continues to decline further from hereon but such talk is a bit premature now in my view.

As the saying goes, we'll cross that bridge when we come to it. As it stands, markets are not close to even pricing in such a scenario just yet. I reckon near-zero rates may be the first step before QE is considered.