Negative interest rates?

leo25 said:
I wonder why Evans thinks negative rates in and of itself would cause our dollar to go down in value?
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I'm not really over the explanation but this what Evans argues:

A more competitive exchange rate stands out. For small open economies like Australia and New Zealand, improving the competitiveness of the exchange rate has more direct implications for jobs and inflation. With large foreign liability funding commitments offering negative interest rates to foreign investors, even if restricted to the short end of the curve, would require a significantly more competitive exchange rate. This would not be the only drag on the currency – domestic investors and savers might be attracted to higher short term yields in other countries leading to more downward pressure. Consider the impact on the Euro (recall that Europe enjoys a significant current account surplus) in the aftermath of the introduction of negative interest rates. In June 2014 when the ECB announced the reduction in the deposit rate to –0.1% the EURO stood at USD1.37. By December 2014 it had fallen to USD1.21 after a second reduction by 0.1% to –0.2% in September and had reached USD1.08 by December 2015, (admittedly following the Fed’s first rate hike).
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https://westpaciq.westpac.com.au/wi...Australia/2020/June/WestpacWeekly20200601.pdf

His official advice is that we're unlikely to see negative rates this year simply because of the forward guidance from the RBA. But he then adds that's we shouldn't rule it out, in case they change their mind.

It's an easy listen:

 
Good clear talk, something you don't normally hear. Though the advantage he talks about is at best short lived. Lets be more direct, what he is really talking about is more currency devaluation/money creation, but if everyone is doing it then it has no net effect.

But lets be even more direct to why he wants to go negative and that's to boost bank profits. He is hoping at some lower rate people will start borrowing more and thus banks making more money. But they can only do that once rates go negative, so they can maintain a healthy spread.

Even if they do drop rates, this doesn't guarantee people will increase borrowing and might have a negative effect and cause people to be further spooked about the future.

Philip Lowe's logic is better. It's best to not go negative (which risk causing instabilities) and instead just get government to spend on important projects that will increase future prosperity. But sadly we have ScoMo and the monkeys that surround him.
 
leo25 said:
But sadly we have ScoMo and the monkeys that surround him.
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Yes, there's still a few of his key players that aren't up to speed as of yet. Maybe Bandt and his Greens might make the Libs get a wriggle on, or even a few labor backbenchers. A quick look at their economic policy platform and it's still heading in a better way than Labor, and the Greens though eg lower taxes (though they're still obsessed with "corporate tax avoidance" like the other parties). They haven't updated their policy platform since Feb 2020.

Haha, have you also noticed that the statements by Lowe after each Board Meeting are becoming just cut and pastes of the previous month's announcements? :p
 
The cash rate is expected to drop.

And the RBNZ and BOE have said they'll join the subzero club, and we're not talking turf champions here. That will leave the US, the Canucks and Oz as the only major economies with a +ve overnight cash rate.

From Betashares, the 3 reasons that CBs go subzero on us, 1 fear of deflation, 2 manipulate the currency and quite interestingly:

A third explanation isn’t related to central banks so much, but an excess of global savings and a shortage of safe, liquid assets. Many large institutions are simply willing to pay for safe return of their capital or are forced to buy government bonds for regulatory reasons. Furthermore, government bonds are the most sought-after collateral in secured money markets and over the counter derivatives transactions, further restricting supply for investment.
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https://www.betashares.com.au/insig...6S3Z5RTRTT0pqV205d2h3bXRpampxb1lMZzVldkEifQ==

I first heard this idea over a year ago on Real Vision, the idea that there is too much savings. And I was scratching my head to understand. But I think that it relates to a lack of sound investment opportunities in the market.
 
mmm....shiney! said:
Haha, have you also noticed that the statements by Lowe after each Board Meeting are becoming just cut and pastes of the previous month's announcements? :p
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Quoting myself, :eek:

In his latest speech Lowe said that they're not going to cut-and paste from previous minutes any more.

Over recent months, our communication has stated that the Board will ‘not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band’.
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snip

In terms of inflation, our forward guidance has been forward looking – we have focused on the outlook for inflation, not just current inflation. This was a sensible approach when the inflation dynamics were relatively stable and well understood. In today's world, things are much less certain. So we will now be putting a greater weight on actual, not forecast, inflation in our decision-making.
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https://rba.gov.au/speeches/2020/sp-gov-2020-10-15.html

LMAO.
 
BuggedOut said:
Give yourself some time to bake up a nice humble pie ;)
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Steady on, we haven’t got there yet. And in fairness I think if we do go there (and it seems more likely than before but it’s still not certain), that it’s taken far longer than those saying it would happen would have believed originally.

So I remain content that my position that the RBA’s forward guidance remains a better indicator of the potential for -ve rates than the “well everyone else is doing it” argument of others.
 
@BuggedOut, I know I've got nothing better to do with my life, well I do I just keep putting it off. ;)

I went through one of the previous threads where a few of us locked horns, in particular this post from 6/3/20 with me and @STKR :

https://www.silverstackers.com/foru...ate-cut-down-to-0-5.95006/page-4#post-1128309

That indication I mention in that thread may be just around the corner, but it's not there yet:

The Board discussed the case for additional monetary easing to support jobs and the overall economy. As in previous meetings, members discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative, and buying government bonds further along the yield curve.
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https://rba.gov.au/monetary-policy/rba-board-minutes/2020/2020-10-06.html
 
Oh, there are some real chestnuts in that thread for sure. If we're grabbing quotes, how about these ones :-

mmm....shiney! said:
If by your experience in life you are referring to the fact that negative rates have been implemented overseas, then you should be aware that the RBA has acknowledged that and has clearly stated that such a course of policy would not be appropriate for Australia.

Rather, Lowe has made it clear that the RBA’s unconventional monetary policy has just about been exhausted and that he expects fiscal policy programs to go into effect.

Just thought you should be aware of that before you take heed of the morons who claim we’ll see negative rates in Australia.
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mmm....shiney! said:
The morons are the ones who have no rational basis for their views.
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mmm....shiney! said:
@madaw1 I admit I'm being overly brutal about your's and @BuggedOut's opinion regarding negative rates.
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You haven't turned out to be wrong YET so I guess I just need to be content with the fact you are no longer calling us morons.

If I can take a turn at being a bit brutal, I think you've been naive this whole time to have been believing the RBA forward guidance :)
 
When the doom and gloom people talk about negative rates, they normally mean banks charge you money for having deposits in the bank.

Ill give my 100% guarantee that banks will not charge a negative interest rate on deposits and you will never be able to borrow money at a negative rate. Lock it in Eddie :)
 
leo25 said:
When the doom and gloom people talk about negative rates, they normally mean banks charge you money for having deposits in the bank.

Ill give my 100% guarantee that banks will not charge a negative interest rate on deposits and you will never be able to borrow money at a negative rate. Lock it in Eddie :)
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YEAH 100000000000000%
 
I never trust anyone who tries to give a 100% guarantee on something that is totally outside of their control :)

I could see banks here trying to charge a negative rate on deposits if our cash rate goes negative. They are already doing it in Germany.

https://uk.news.yahoo.com/negative-...-banks-that-handle-their-money-210154187.html

Negative-yielding savings accounts are common in Germany now, with some of the nation’s largest banks passing on the negative rates they receive from the ECB.
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leo25 said:
When the doom and gloom people talk about negative rates, they normally mean banks charge you money for having deposits in the bank.

Ill give my 100% guarantee that banks will not charge a negative interest rate on deposits and you will never be able to borrow money at a negative rate. Lock it in Eddie :)
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YEAH 100000000000000%
 
I'm going to look into starting a bank & charge customers/suckers to keep their $ in my safe .
I don't have to do anything with the deposits .
Just charge them for holding their cash :eek:
Sounds like a plan
 
BuggedOut said:
If I can take a turn at being a bit brutal, I think you've been naive this whole time to have been believing the RBA forward guidance :)
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Of course I believe the RBA's forward guidance, it's good up until the next meeting when they may change their mind, but we're going to get a bit of a warning now because they're adopting a policy of giving a speech a couple of weeks after each meeting.

And I've laid out my reasons why I put more faith in what the RBA print than what is printed/podcasted by an author on some alternative media site that finds it impossible to come to grasp with the nature of our modern monetary system ie morons and the people who believe them ie morons. :p

You can call it naive to follow their forward guidance, I think it's actually the intelligent thing to do.
 
spannermonkey said:
I'm going to look into starting a bank & charge customers/suckers to keep their $ in my safe .
I don't have to do anything with the deposits .
Just charge them for holding their cash :eek:
Sounds like a plan
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You mean like The Reserve Vault in Brisbane? :p
 
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