The Reserve Bank of Australia (RBA) has exposed that in the very near future it could be forced into “unconventional” methods of trying to claim back the Australian economy and get it back on track.
It has been suggested by the RBA that Australians, for the first time in history, could soon be paid to borrow money from the banks in order to stimulate and recover the economy.
RBA Governor, Phillip Lowe, explained to the governments standing economic committee on Friday, that the bank was now considering “unconventional” approaches in order to get the country moving forward in a positive economy.
“It’s possible that we end up at the zero lower bound. I think it’s unlikely, but it is possible. We are prepared to do unconventional things if the circumstances warranted it.” Lowe stated.
Among this are other methods that have been put forward as an effort to reclaim the economy, and this includes slashing the official interest rate, which is currently below 1 percent, to below zero.
Lowe went on to further explain,
“When we look overseas, we see some central banks have very low interest rates and some countries have negative interest rates. In Switzerland right now the interest rate is -0.75 percent, in the Euro area its -0.40 percent and in Japan it’s -0.10 percent. So some central banks have gone negative. That’s one possibility.”
However, if this was to happen what would it mean for Australians?
Instead, like it has previously occurred in the past, when we borrow money from the bank, the bank pays interest on that deposit. As the interest rates get lower, individuals receive less interest on their deposits and pay less on what they borrow, meaning that mortgages and other loans essentially become cheaper.
When the interest rates enter the territory of negative, this mean that money deposited with a bank can be charged interest instead of the individual earning it. Or banks can pay individuals to borrow money.
This means, as an example, that if the interest rate was cut to -2 percent an Australian with a loan form the bank of $100 would be paid $2 for every year they had the loan. On the flip side of this however, if an Australian left $100 in a bank account and didn’t touch it they would be charged $2 at the end of the year for holding their money in the bank.
It has been well tested that countries that have negative interest rates ultimately weakens the countries fiat currency.
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