Will interest rate cuts actually boost the economy,
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As I was reading ABC Business Editor, Ian Verrender’s, article ‘I predict forecasters will get it wrong again’ it got me thinking about interest rates.
Particularly as the Bank of Canada cut its overnight lending rate this morning to just 0,
star wars new era hats.75 per cent its first interest rate move in more than four years.
Notwithstanding those differences, Canada’s move has prompted financial markets in Australia to raise their probability of more interest rate cuts here.
Even before the Bank of Canada sprung into action, Westpac Bank was continuing to push its view that the Reserve Bank of Australia will start cutting interest rates again as early as next month.
According to Westpac chief economist, Bill Evans: "We expect that by the time of the release of the inflation report next week the case for a rate cut will have been made. The prospect of moving in February should be attractive to the (Reserve) Bank."
And Bill Evans is predicting a second rate cut in March, which would take the official cash rate to just 2 per cent.
However, even if Bill Evans’s predictions came true, in reality, what would they achieve?
At the current 2.5 per cent,
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For example, ANZ’s standard variable mortgage rate is 5.88 per cent and many customers of all the banks are paying a lot less than the standard variable rate.
It’s not much and the reality is that most people, far from going on a $50 a month spending spree, will instead keep their repayments the same and pay off their home loan more quickly.
So that raises the question: is there any real difference for the economy between an official cash rate of 2.5 per cent or 2.25 per cent.
Or to put that another way,
new era hat sale, who do you know that is complaining that rates are so high at the moment that they can’t afford to get a loan?
Will demand for loans dramatically increase if already low rates are cut further? It’s demand for loans that will fuel growth in the economy, that’s the real issue.
To get people’s attention, I suggest the Reserve Bank’s next interest rate cut would have to be dramatic. At least half a percentage point and possibly 1 percentage point, and that would bring back memories of the GFC at its worst when the bank sliced 3.75 per cent off the official cash rate in four months.
The result? Counterproductive because, having got our attention, we’ll be asking, "What’s wrong? Why is the Reserve Bank taking GFC type action? What problems is it seeing that we’re not?"
In short it will create uncertainty, and uncertainty is the best way to keep wallets shut and the economy in the slow lane.
The Reserve Bank governor alluded to that in a speech last year when he said: "The power of monetary policy (interest rates) to boost domestic demand depends importantly on some sectors of the economy being in a position to respond to lower costs of debt, higher collateral values, reduced incentives to save and so on, by spending more today,
pink new era hats, with confidence that their income in the future will allow them to service and repay the debt."
Mr Stevens then went on in the same speech to lament the lack of non mining business investment, which is a direct result of businesses being uncertain of the future.
Cutting already low interest rates won’t eliminate that uncertainty and, by definition, won’t lead to the investment that creates jobs and makes you and I feel confident to open the purse strings.
It’s worth noting that, despite the strong growth in full time employment in the latest jobs figures, the unemployment rate over the last 12 months has risen significantly. Many people are worried about their jobs.
And one more thing. People who rely on interest rate based investments for their livelihoods will have their incomes further reduced if interest rates go down again. 相关的主题文章：