RBA Jargon: Quantitative easing = money printing to stimulate the economy.
Reserve Bank considering quantitative easing to stimulate economy
Updated
It's been revealed the Reserve Bank is entertaining the idea implementing quantitative easing or money printing to stimulate the economy. The bank's plans were uncovered during an interview with the man who will take the reigns as Reserve Bank governor in September, Philip Lowe.
While Mr Lowe says the likelihood of the bank having to consider such measures is 'very remote', for many, including highly leveraged property investors, it's provides further reassurance that interest rates will remain at record lows.
David Taylor
Source: AM | Duration: 3min 6sec
http://www.abc.net.au/news/2016-07-16/reserve-bank-considering-quantitative-easing-to/7634758
ELIZABETH JACKSON: It's been revealed the Reserve Bank is considering implementing quantitative easing, or printing of money, to stimulate the economy.
The bank's plans were uncovered during an interview with the man who will take the reigns as the Reserve Bank governor in September, Philip Lowe.
While Mr Lowe says the likelihood of the bank having to consider such measures is "very remote", for many, including highly-leveraged property investors, it's provided further reassurance that interest rates will remain at record lows.
David Taylor reports.
DAVID TAYLOR: Investment experts are playing down the likelihood of the Reserve Bank using extreme policy.
MATT SHERWOOD: That is a highly unlikely event.
DAVID TAYLOR: Matt Sherwood is the head of investment strategy at Perpetual Investments.
So what would prompt the central bank to start printing money?
MATT SHERWOOD: The Reserve Bank may be compelled to phone Treasury and ask them to increase the size of their balance sheet to undertake a program. But this would have to be under the most extreme worst-case scenario, where the Chinese economy was collapsing and there was flow-on effects across the rest of the world.
DAVID TAYLOR: While actually printing money might be just a remote possibility now, it seems further record low interest rates are becoming more likely.
Markets commentator Marcus Padley:
MARCUS PADLEY: The trend is quite clear globally and I don't think Australia - without the resources boom, anyway - is likely to be able to buck that trend. Interest rates are going to inch down.
DAVID TAYLOR: Shaun and Jackie McCann are all too aware of that trend. They have a large mortgage and are heavily invested in the property market.
SHAUN MCCANN: We've got huge, you know, loans like everybody else has and we've invested in property here. So we need, you know, the best interest rate we can get.
DAVID TAYLOR: If you don't mind me asking: to what extent have you invested in property?
SHAUN MCCANN: Ah... a bit. (Laughs) A bit.
DAVID TAYLOR: By "a bit", he means: he and his wife are stretched to the limit of what they can afford.
Shaun and Jackie McCann are typical of many Australians who have decided to take advantage of what looks like a very long period of record low interest rates.
SHAUN MCCANN: I think a lot of people, Sydney residents, are all in the same boat as me. We just want to be stable and not fluctuate too excessively up or down, because we're all playing the variable rate market and yeah. We're...
JACKIE MCCANN: And people have made the most of the lower interest rates, like we did, certainly, and went out and stretched ourselves that little bit further when they were lower interest rates. And now we'd like it to stay so, because if they start to go up, then, yes, it does change our investments and our home and that kind of thing.
DAVID TAYLOR: Australia now has the highest debt level in the world, prompting international ratings agencies to warn it's approaching financially dangerous levels.
And, from what Shaun and Jackie tell me, there appears no end in sight.
JACKIE MCCANN: Just seems to have no boundaries on who can afford what. And you go for a house and you think, "Oh, yeah. This is in our price bracket". And the next thing it's gone off, you know, a whole lot more than what you think it's going to sell for. But it's the one thing, to me, that has not ceased. It's actually gone off. It's on fire in Sydney.
SHAUN MCCANN: Still a good investment.
ELIZABETH JACKSON: Property investors Shaun and Jackie McCann, ending that report from AM's David Taylor.