Australia's Banks Are Preparing For Negative Interest Rates!
- Thread starter whay
- Start date
Who's going to pay fo for those fat-cats?!
Probably not. The RBA is aware that negative rates have not worked in other countries so that strategy is unlikely to be used in Australia. It’s not even on the radar nor worth considering when deciding on your investment strategy.
The RBA have already said they're testing their systems for a negative rate environment. They also say it's "Not likely" we'd go to negative, but I wouldn't trust a word that spins out of the mouths of the RBA when it comes to the strength of the economy. Too many political and financial reasons to lie or avoid the truth.
Regardless of whether negative rates are working in other countries, the possibility of going negative is high in my view. Central banks have two main tools at their disposal:
*Controlling the money supply:
The volumes and frequency of currency being loaned to the retail banks. Higher volumes and frequency = more aggressive lending etc.
and
*Controlling the interest rate:
The rate at which currency/debt is loaned to the retail banks. The RBA expect part of the rate cuts to be passed on the the borrowers, and this will help 'stimulate' the economy.
The IMF says it best:
"Many central banks reduced policy interest rates to zero during the global financial crisis to boost growth. Ten years later, interest rates remain low in most countries. While the global economy has been recovering, future downturns are inevitable. Severe recessions have historically required 3–6 percentage points cut in policy rates. If another crisis happens, few countries would have that kind of room for monetary policy to respond."
The full article is here and it's a good read.
https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/
So where do we go from here If we have a recession?
As Raven said: "how do you explain legislation on the table to limit, and go cashless?" - It's all straight out of the IMF handbook.
I wonder what negative rates and restricted cash use would do for Gold and silver demand?
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pmbug
Well-Known Member
This is from August (just a few months ago):
https://www.abc.net.au/news/2019-08-09/reserve-bank-cuts-economic-forecasts-again/11399576
That was on the heels of the $10K cash limit (in effect the month before).
https://www.abc.net.au/news/2019-08-09/reserve-bank-cuts-economic-forecasts-again/11399576
That was on the heels of the $10K cash limit (in effect the month before).
harry_mr
Active Member
Nothing is off the table according to Lowe however I do think QE, bank account bonuses, handout helicopter money might be trialed before negative rates were used. 2% inflation must be achieved however with no wage growth coming it seems something is not working in their handbook.
I tend to agree with this view. I think we'll go down the QE / Fiscal path before going negative.
I wouldn't be suprised if the following happened...
A couple more rate cuts ( to 0% or 0.25%) , then QE for the banks ( which won't work), then QE for the people ( helicopter money). Plus a good dose of Government spending + Subsidies thrown in.
@STKR, regarding PM prices in a negative rate environment. I suspect rates could go to negative 20%, and as long as the US economy "appears" strong and equities continue to rally, they ( PMs ) will see little change. But even the most experienced economists / investors are scratching their heads over the long term effects of this monetary experiment.
The links above regarding comments from the RBA on negative rates are old. Also my memory is hazy but I think Lowe made mention of the ZLB in a speech at some time, explaining that it effectively is 0.25% for Australia for some reason that eluded me, it was a bit technical. He may talk about it in the link below. It doesn't mean 0% from my understanding.
Lowe addressed The Australian Economists Dinner on November 26 this year. He made it clear that NIRP and lending operations are not policy considerations for the RBA for a variety of reasons. The RBA will persist with forward guidance and may drop rates to a low of 0.25%. At that point if the economy shows signs of continuing deterioration it is his expectation that UMP would have been exhausted and that the ball will be in the government's court and that they must implement fiscal policy strategies.
That means no negative rates or lending by the RBA and that the government either has to reduce taxes or begin ramping up spending. I'm of the opinion that these potential outcomes are worthy of more consideration when planning an investment than the faint possibility that the RBA will go all NIRPy on us.
Lowe addressed The Australian Economists Dinner on November 26 this year. He made it clear that NIRP and lending operations are not policy considerations for the RBA for a variety of reasons. The RBA will persist with forward guidance and may drop rates to a low of 0.25%. At that point if the economy shows signs of continuing deterioration it is his expectation that UMP would have been exhausted and that the ball will be in the government's court and that they must implement fiscal policy strategies.
That means no negative rates or lending by the RBA and that the government either has to reduce taxes or begin ramping up spending. I'm of the opinion that these potential outcomes are worthy of more consideration when planning an investment than the faint possibility that the RBA will go all NIRPy on us.
Well, the big banks are getting ready to make it harder for you to withdraw your money...
"Major banks removed hundreds of ATMs in the latest year, as the industry responded to the scrapping of withdrawal fees and consumers further reduced their use of cash.
In a trend that is tipped to ramp up as digital payments take off, all of the big four have made cuts to their ATM networks in the latest 12 months for which figures are available, with one lender culling one in four machine".
https://www.smh.com.au/business/ban...ore-customers-ditch-cash-20190118-p50s5j.html
"Major banks removed hundreds of ATMs in the latest year, as the industry responded to the scrapping of withdrawal fees and consumers further reduced their use of cash.
In a trend that is tipped to ramp up as digital payments take off, all of the big four have made cuts to their ATM networks in the latest 12 months for which figures are available, with one lender culling one in four machine".
https://www.smh.com.au/business/ban...ore-customers-ditch-cash-20190118-p50s5j.html
This is probably the correct outcome given current circumstances but the bank's will be preparing their systems regardless to account for a negative interest rate environment if it does come.
Back in the good old days of the GFC when Greece was looking at a total debt default and talk re Greece (and maybe others in financial strife like Spain and Portugal) leaving the EU was abounding (right or wrongly), the major Aust banks where making changes to their FX dealing and FGN currency accounting so in need if the Greek drachma came back into being, their could deal with it. If fact, I think they did same for all former currencies of EU members in case the EU started to fall apart.
To me, negative rates are just a ploy by Germany to weaken the euro to boost EU exports. It only works as long as the US has a much higher rate. Once US interest rates start to fall to zero, other countries that have marginally negative or close to zero rates will need to go even more negative, maybe punitive measures like each time you put money into the bank or withdraw cash there is a 1-2% commission.
I haven't heard this speech from Philip Lowe, but I can understand what you're trying to say. Any rate that is lower than the achieved % of inflation for that year is essentially a negative rate. If inflation was 3% for that year and the retail banks loan at 3.25%, then essentially the interest rate repayments are only 0.25% above the depreciation rate of the currency loaned.
This means the retail banks are already in a negative rate environment relative to inflation, and have been for years.
Check out the RBA's cash rate history from 1990 @ 17% to now:
https://www.rba.gov.au/statistics/cash-rate/
It's not a pretty sight.
harry_mr
Active Member
STKR what you are refering to is negative 'real rates'. Negative interest rates refer to the Central banks lending rate.
Don't you love when you get free stacking money? The only question is how to split it between gold and silver!
As long as long the metals are bought cheap, ratio is immaterial if everything has appreciated. The most important is the number of ounces in total. A person who has bought 5 ounces of gold and no silver, versus another with 5 ounces of gold and 500 ounces of silver. Who is better off?
Some would argue that the second person is, because his silver will convert to gold at a better rate than if he had just bought gold alone. I argue that every dollar wasted on silver is a dollar not spent on gold, but this is a silver forum so I must be friendly with the masses
