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You might think low interest rates would be good for banks. And they can be. But when they turn negative, the situation turns. All this ‘fun’ could all be coming to Australia soon.
That is exactly what the market is predicting today. The RBA Governor said as much in the minutes from the last meeting. In fact, you are unlikely to find anyone who doesn’t think the RBA will lower the cash rate today.
If the academics have found anything, it’s that interest rates have little bearing on growth at all. In his 2018 Reconsidering Monetary Policy paper, Richard Werner finds the relationship between interest rates and growth is actually positive…meaning interest rates and growth move together.
The RBA left the interest rate unchanged yesterday at 1.5%. This is in line with a policy that has been in place since August 2016.The longer-term picture for interest rates, however, could involve one or possibly two 25 basis point cuts this year.
So even though Trump might not be 100% right when he says the US is ‘booming like never before’, he might get something close to it if he just says it over and over again.
Forget interest rates. Don’t bother listening to central bankers or commentary on what interest rates will do next. It’s just a bunch of intellectuals throwing ideas around that will have little to no effect.
With financial markets continuing to price in the possibility of an RBA interest rate cut by the end of this year, it’s worth examining the factors that could lead to this move.
It’s not a question of if this will happen, it’s a matter of when. Interest rate rises by the Fed preceded every post war recession.