Currency talk: Quantitative tightening and calls for RBA to cut interest rates to 1.5%
Jason Walls and ANZ's Sam Tuck discuss the global currency market news on NBR Radio and on demand on MyNBR Radio.
A new concept called ‘quantitative tightening’ has caught the attention of ANZ senior FX strategist Sam Tuck.
He says quantitative tightening is essentially the ‘normalising’ of global interest rates, whereby interest rates are taken back to a more ‘normal’ level.
He says quantitative tightening is almost the exact opposite of quantitative easing, whereby a central bank stimulates an economy by dropping interest rates and even creating new money to finance assets.
“That dynamic has been pressuring the emerging market economies and also commodity currencies such as the New Zealand dollar,” he says.
He says the global economic pulse has slowed down over the past couple of months and has caused markets to dial back expectations of when that normalisation process will occur.
IMF managing director Christina Lagarde has revealed she no longer thinks a global GDP growth of 3.3% is “realistic.”
She says previous forecasts of 3.8% growth in 2016 are now unlikely too.
Activity has also continued to cool down in the Australian economy.
The Reserve Bank of Australia (RBA) today chose to keep its interest rates on hold.
But Mr Tuck says he does not believe 2% is the bottom when it comes to Australia’s interest rate, saying he expects the RBA will make two more rate cuts, bringing the OCR down to 1.5% next year.
ANZ is the first domestic bank to call for an interest rate lower than 2%.
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NBR Radio
Tue, 06 Oct 2015
Tue, 06 Oct 2015
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Currency talk: Quantitative tightening and calls for RBA to cut interest rates to 1.5%
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