With the Reserve Bank of NZ tipped to start heading down the road towards a negative interest rate regime either in today’s monetary policy decision or later in the year, the Reserve Bank of Australia has ruled out a similar move.
In an online address yesterday, the RBA deputy governor, Guy Debelle made it clear a move to negative rates was “extraordinarily unlikely” and the RBA is considering all its policy options.
“Given the outlook for inflation and employment is not consistent with the bank’s objectives over the period ahead, the board continues to assess other policy options,” he said.
Negative rates have been adopted in Japan, Spain, Denmark, and Sweden as well as Switzerland.
The RBNZ has already instructed Australia’s big four banks to make sure they understand the processes for going to a negative rate regime and make could make an announcement in its monetary policy decision later this morning.
Dr. Debelle said in his speech that it is possible the RBA could cut the current 0.25% cash rate again if needed but was not interested in the idea of negative rates, as his boss Governor Phil Lowe has made clear previously.
In his speech, Dr. Debelle listed a number of reasons why the negative rate idea was not interesting to the RBA.
He said the adoption of a negative interest rate position could impact consumption levels and hinder the financial system in the medium to long term.
“Negative rates can also encourage more savings as households look to preserve the value of their saving, particularly in an environment where they are already inclined to save rather than spend,” he said.
“To date, those economies with negative policy rates have not lowered them further. Instead, they have eased monetary policy settings through other means,” Dr. Debelle explained.