If quantitative easing happened in Australia, the country would be somewhat of a test case. Here's what it would mean and how it works.
The Reserve Bank of Australia has cut the official interest rate three times this year, from 1.5 per cent to 0.75 per cent after two years of no moves.
Even though Australia is entering a record 29th consecutive year of economic expansion, the last GDP report showed growth eased to a decade low. Lower interest rates have attracted many buyers back to the property market though, with Sydney and Melbourne seeing a rebound in prices recently, and to the share market, which is currently trading at record highs because shares offer better returns than cash.The Reserve Bank is running out of ammunition in the form of interest rate power because it's heading closer to zero and has indicated it is considering using unconventional monetary policy.
The RBA is reluctant to use this form of stimulus though, because with cheaper money, assets like property may over inflate. “The main downside is that it could exacerbate inequality by pushing up share and property markets. For this reason, fiscal stimulus [an increase in public spending by the government] would be a better path to go down than QE, as fiscal stimulus can be targeted in a fairer way.”NAB chief economist Alan Oster said QE won’t be bad, but the government needs to do its part.
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