Our central scenario is that cutting interest rates to 0.5% will be sufficient to restore growth and eventually return underlying inflation to the RBA’s target. If more stimulus were required, the government would probably remain reluctant to loosen fiscal policy, leaving the onus on monetary policy to support the economy. The RBA would probably cut the cash rate to 0.25% and launch quantitative easing to lower longer-term borrowing costs. And if that doesn’t boost demand and inflation enough, the Bank would probably cut rates into negative territory, perhaps to -0.5%.
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