How long will the cash rate stay at a historic low?

RBA Shadow Board says the cash rate should stay at historic low.

How long will the rate stay low?

The Reserve Bank of Australia (RBA) has announced it will leave the official cash rate unchanged at 0.25 per cent.

The latest April decision follows a rare out of cycle cash rate reduction in March.

Economist Dr Shane Oliver believes back-to-back cuts is as far as the RBA should go.

"0.25 per cent has long been identified by the RBA as the lower bound,” said Dr Oliver.

“There is little benefit to be gained by going to zero or negative based on the experience of Europe and Japan.”

The cash rate should stay at this historic low as Australia heads for a COVID-19 recession, says the RBA Shadow Board set up by the Australian National University (ANU).

The RBA Shadow Board is a project based at the Centre for Applied Macroeconomic Analysis (CAMA) at the ANU Crawford School of Public Policy. It brings together nine leading experts to examine the economy and make a call on optimal interest rates before monthly RBA Board meetings but does not try to predict RBA behaviour.

The COVID-19 pandemic is certain to push Australia into recession for the first time in 28 years, says the board, which is 94 per cent confident that keeping the cash rate on hold is the right policy to see us through this crisis.

“Many standard economic indicators are not a good guide in a fast-moving crisis,” said Shadow Board member Dr Timo Henckel. 

“For example, while the latest official ABS figures show an unemployment rate in Australia of 5.1 per cent, this may well double within a couple of months due to the COVID-19 crisis.

“It is unclear to what extent the government’s JobSeeker program will help workers remain attached to their employers.”

Volatile global financial markets and stock markets taking massive hits mean that “the outlook for the global economy is entirely dominated by the COVID-19 pandemic”, said Dr Henckel.

“The policy responses to control the epidemic are widely expected to lead to a global recession, although there’s disagreement about how deep and enduring it will be.”

Dr Henckel said efforts by the Australian government and RBA to stem the economic downturn are unprecedented and the swiftness with which they’re being implemented makes it difficult to forecast their likely impact.

“Looking ahead six months, the Shadow Board’s vote in favour of keeping the cash rate steady at 0.25 per cent is still very high – 88 per cent,” he said.

“The probability attached to both a rate cut and rate hike is six per cent.” 

How long do you expect the cash rate to stay this low? How will it affect your retirement income?

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    COMMENTS

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    Circum
    7th Apr 2020
    7:46pm
    There is no connection between the virus and the RBA decision.The RBA decision was publicised long ago.Apart from fall on their sword by going to zero,seems someone in the RBA woke up and asked "whats the point in all these decreases".The stockmarket is disappointed so it goes down.After one sleep the stockmarket will forget all about it.The low cash rate will continue to cause much damage to peoples plans as well as their sanity.
    Circum
    7th Apr 2020
    7:46pm
    There is no connection between the virus and the RBA decision.The RBA decision was publicised long ago.Apart from fall on their sword by going to zero,seems someone in the RBA woke up and asked "whats the point in all these decreases".The stockmarket is disappointed so it goes down.After one sleep the stockmarket will forget all about it.The low cash rate will continue to cause much damage to peoples plans as well as their sanity.
    Colours
    7th Apr 2020
    10:56pm
    Low rates are further inflating the dangerous real estate bubble, as well as making life difficult for those who have saved for their retirement. It is clearly doing nothing to increase consumer confidence or employment, and will be useless in helping with the coronavirus collapse.
    Franky
    8th Apr 2020
    7:43am
    With all the money printing going on I can't see interest rates ever going up again. In the near future currencies with lower debt levels will further appreciate whilst currencies of highly indebted countries will sink. Forget overseas travel for a while. In the longer run there will have to be a reset of all this debt. We need to go back to money being issued by government as credit, not by banks as debt to be repaid with interest. As it is there will never be enough money to pay debt and the bankers end up with all the assets. The game is nearly up and this fraud which is designed to transfer wealth from the many who created it to the few who print the money will end.
    Mariner
    8th Apr 2020
    11:24am
    My sisters live in Europe and they have interest rates in the negative for a few years now. It only really affects people with more than $100'000 in the account. Under that you just get zero return, over it you look at about -0.75%. You pay the bank to keep your money, possibly cheaper than renting a bank vault box.


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