NAB expect the RBA to soon adopt unconventional monetary policy

NAB are now forecasting the RBA will soon adopt unconventional monetary policy, given the rapid coronavirus-driven deterioration in both the local and global economies.

They expect the RBA to announce a second cut in as many months when they meet next month, bringing the cash rate down to 0.25 per cent.

The RBA have already suggested they are unwilling to take the cash rate down to 0.

NAB predict "yield curve control" to commence by May or June.

"Yield curve control is a form of quantitative easing where the RBA announces target levels for government bond yields and buys bonds if yields fail to settle at those targets", NAB advised, adding the plans could be announced as early as April.

"The timing is very fluid, depending on the state of the [coronavirus] outbreak, the economy and financial markets.

"Increased containment efforts in Australia and the rest of the world would likely speed the path to unconventional policy. 

NAB suggest it is important monetary and fiscal policy are now working in tandem.

"The Commonwealth government should announce spending and tax measures later this week, aiming to minimise job losses by shoring up the cash flow of affected businesses."

The fiscal stimulus could total $10bn, or around 0.5% of GDP. 

"More significant measures could be considered in the May budget and a greater reliance on fiscal policy is warranted given the nature of the shock and with conventional monetary policy near exhaustion. 

"The economy will recover as the outbreak comes under control, hopefully by the end of this year, if not sooner, but until then easier policy has a critical role in providing support until the crisis abates."