Ultra-low interest rates: Is money worth anything anymore?
On 1 October 2019, the Reserve Bank of Australia (RBA) reduced the official cash rate to 0.75%, with RBA Governor Philip Lowe saying that it was prepared to further ease monetary policy in favour of achieving substantial economic growth. This now means we are in reach of something that was once inconceivable – a cash rate of 0% or below.
Minutes from an RBA board meeting earlier this year showed that the board had also explored the use of unconventional monetary policies – such as negative interest rates, or buying government bonds and other fixed interest securities to lower long-term interest rates.
Zero or negative cash rates are hardly unprecedented elsewhere in the world. Japan’s equivalent to our cash rate is −0.1%, while the European Central Bank’s is −0.5%. The US Federal Reserve Board also cut its short-term rate to zero in the aftermath of the US Financial Crisis (2007–2008).
This article is intended for general discussion and is not intended to represent specific advice. Banks Group shall not be responsible for any entity that acts on any of the comments in this article without first obtaining specific advice from Banks Group.