RBA downplays possibility of negative rates

By Gerv Tacadena

A negative rate is "extraordinarily unlikely" in Australia.

A negative rate is "extraordinarily unlikely" in Australia, said the Reserve Bank of Australia Governor Philip Lowe.

While Lowe recognised that it would take more than just low rates to boost investment and breathe new life to the economy, he said there appears to be no need to bring the official cash rate to an uncharted territory.

"I'm not going to speculate on negative interest rates and quantitative easing in Australia, other than to say that negative interest rates are extraordinarily unlikely in my country," he said in a panel event by the International Monetary Fund (IMF) at Washington, D.C.

The central bank has already made three cuts so far this year, bringing the official cash rate to 0.75%. Economists expect the RBA to make another cut by February.

Also read: Should Aussies expect a negative mortgage rate anytime soon?

Lowe's recent remarks seem to contradict the indication he made in a recent report by the BIS Committee on Global Financial System, where he talked about how "unorthodox methods" helped central banks during the Great Financial Crisis.

"One key lesson is that the tools are most effective when used together with a broader set of policies, like fiscal and prudential measures," he said in the report.

Lowe even told the House of Representatives in August that the bank is prepared to do "unconventional things if the circumstances warranted it."

"It's possible we end up at the zero rate lower bound. I think it's unlikely but it is possible," he said.

Lowe said the recent rate cuts and tax discounts have been effective at supporting the domestic economy and the property market.

"The economy has been through a very soft patch over the past year but it is actually gradually improving — the lower interest rates are working. So I think it's quite probable that we'll see a return to trend growth over the next year, which will be good," he said.

More Mortgage News