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Quantitative Easing- November 2020

Updated: Nov 15

Alongside a cutting of the cash rate to a historic low of 0.1%, the RBA's announcement of its monetary policy decision last week came with the announcement of a $100 bn bond buying program, as the reserve bank pulls out the big guns through quantitative easing. Governor Philip Lowe cites the reason for the additional stimulus as necessary for further supporting "job creation and the recovery of the Australian economy from the pandemic". The expectation is that quantitative easing will encourage further borrowing and spending in the economy to complement low current interest rates.


Australia hasn't been the only economy resorting to unconventional monetary policy means. The Federal Reserve began its bond buying program as far back as March of this year, implementing up to $700 billion in assert purchases as a means to pump liquidity to the US economy. The 33.1% expansion of the US economy in the third quarter can be partially attributed to the success of this policy, alongside fiscal stimulus and wage safety nets for workers. One of the costs of increasing the money supply can be excessive inflation, as this results in 'too many dollars chasing too few goods'. However, with inflation currently standing at 1.4% in the US and broad-based disinflationary pressures still high around the world, this trade-off appears to have been avoided for the time being.



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