Financial markets are increasingly expecting the Australian cash rate to fall into negative territory, following in the footsteps of a number of the world’s developed markets.
Speaking at S&P Global’s annual Breakfast with the Economist series in Sydney, Su-Lin Ong, managing director and chief economist at RBC Capital markets, noted the rise in expectations of a negative interest rate environment in Australia.
This would be an environment where banks and financials institutions would pay the Reserve Bank of Australia (RBA) to hold excess cash reserves, encouraging investment.
“We’ve heard everyone from RBA governor [Philip Lowe] to deputy governor [Guy Debelle] talk about [a cash rate] somewhere around 0 per cent, 0.25 per cent and 0.5 per cent,” she said.
“It does beg the next question about what happens when we get to those types of levels. Do we adopt some similar unorthodox policy that we’ve seen around the globe? Do we go into that negative interest rate environment?
“While policymakers may be very reluctant to do so, financial markets are absolutely thinking about it, even here in Australia.”
Ms Ong acknowledged she believed Australia is a “long way off from that discussion”, but foreign markets are expecting the RBA to implement the measure sooner rather than later.
The economist stated that such expectations emerged as a result of trends in the domestic economy, which resemble those experienced in foreign markets prior to employment of negative rates.
AMP Capital chief economist Shane Oliver agreed with the stance and indicated that he does not expect Australian policymakers to take the same path trotted by foreign central banks anytime soon.
“[It] would make sense for the RBA to call a halt to cash rate cuts around 0.5 per cent or maybe 0.25 per cent,” Mr Oliver said.
“There would be little point in going to zero or negative as the banks will be unlikely to pass it on in lower mortgage rates as they won’t want to take deposit rates negative. So, negative interest rates will hopefully be avoided,” Mr Oliver continued.
In the medium term, both Ms Ong and Mr Oliver are expecting two rate cuts by the end of the year, meaning the official cash rate for Australia would be 0.5 per cent.
About the author
Join The Nest Egg community
We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians
Your email address will be shared with nestegg and subject to our Privacy Policy
About the author
Join The Nest Egg community
We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians
Your email address will be shared with nestegg and subject to our Privacy Policy
No need to worry: Market at its ‘normal, orderly self’
Why savvy investors are purchasing ETFs
How will your investments perform for the remainder of 2019?
Small investments offering big gains
How and where to invest according to a market expert
Sign of the times: ASX volatility a ‘great buying opportunity’
most popular
What is the dollar cost averaging investment strategy – and how can I use it?
Reporting season winners and losers: Where to invest
Weathering a weak sharemarket: 6 tips for investors
Telstra marks $1bn in monetisation through sell-off
Why savvy investors are taking advantage of small caps
most viewed
Expenses
‘Egregious’ life insurance payout delays see AMP blasted again
Property
The top 10 suburbs that can expect short-term capital growth
Earn
Estate planning: The 6 biggest mistakes blended families make
Self managed super fund
Regulator warns SMSFs not for all
Listen to
What the heck is with robots and tech - ETFs explained
More podcasts
Find super’s sweet spot
most popular
What is the dollar cost averaging investment strategy – and how can I use it?
Reporting season winners and losers: Where to invest
Weathering a weak sharemarket: 6 tips for investors
Telstra marks $1bn in monetisation through sell-off
Why savvy investors are taking advantage of small caps
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.