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You could be paid to take out a home loan if Reserve Bank Australia negative interest rates

Australians could soon be paid to take out a mortgage if the coronavirus recession worsens.

The Reserve Bank of Australia has revealed it had considered negative interest rates in a bid to deal with the first recession in 29 years. 

Deputy Governor Guy Debelle confirmed this was one of four crisis options the central bank had examined.

‘A fourth option is negative rates,’ he said.

At the very least, economists are now expecting the Reserve Bank to cut interest rates to a new record-low of 0.1 per cent at its October meeting in two weeks.

Australians could soon be paid to take out a mortgage if the coronavirus recession worsens. The Reserve Bank of Australia has revealed it had considered negative interest rates in a bid to deal with the first recession in 29 years. Pictured is a Melbourne Westpac bank during the Stage Four lockdown

Australians could soon be paid to take out a mortgage if the coronavirus recession worsens. The Reserve Bank of Australia has revealed it had considered negative interest rates in a bid to deal with the first recession in 29 years. Pictured is a Melbourne Westpac bank during the Stage Four lockdown

Australia already has home loan rates of less than two per cent and the Reserve Bank’s record-low cash rate of 0.25 per cent is just one quarter of a percentage point cut away from zero.

Australian savers get very little interest

NAB iSaver: 0.95 per cent

Commonwealth Bank NetSaver: 0.9 per cent

Westpac Life: 0.85 per cent

ANZ Progress Saver: 0.85 per cent

Source: Canstar 

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Negative interest rates exist in Denmark, Switzerland, Sweden and Japan.

Denmark’s central bank, known as the Danmarks Nationalbank, has a minus 0.6 per cent rate for deposit accounts.

Since 2019, the Danish Jyske Bank, has offered home borrowers a negative annual rate of 0.5 per cent for ten years.

A rival bank, Nordea, offered the minus 0.5 per cent rate for 30 years. 

Dr Debelle said negative interest rates would be likely to weaken the Australian dollar, now trading at 71.60 US cents, which would make exports cheaper. 

‘A lower exchange rate would definitely be beneficial for the Australian economy, so we are continuing to watch developments in the foreign exchange market carefully,’ he said.

Instead of being paid interest, under a negative rates regime savers are instead charged to keep money in the bank.

Despite that, Dr Debelle argued negative rates would only encourage people to save more instead of spending money, which would stimulate the economy.

‘Negative rates can also encourage more saving 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.

Denmark's central bank, known as the Danmarks Nationalbank, has a minus 0.6 per cent rate for deposit accounts. Since 2019, the Danish Jyske Bank (Copenhagen branch pictured), has offered home borrowers a negative annual rate of 0.5 per cent for ten years

Denmark’s central bank, known as the Danmarks Nationalbank, has a minus 0.6 per cent rate for deposit accounts. Since 2019, the Danish Jyske Bank (Copenhagen branch pictured), has offered home borrowers a negative annual rate of 0.5 per cent for ten years

‘To date, those economies with negative policy rates have not lowered them further. 

‘Instead, they have eased monetary policy settings through other means.’ 

Australia’s cheapest home loans

Bank of Us: 1.99 per cent two and three-year fixed rates (only available to existing customers and Tasmanians)

HSBC: 2.09 per cent, two-year fixed

UBank: 2.14 per cent for fixed one and three years

Source: Canstar 

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Westpac chief economist Bill Evans interpreted Dr Debelle’s speech to mean interest rates would be cut on October 6 from an already-record low of 0.25 per cent to a new record low of 0.1 per cent 

‘In a speech yesterday the Deputy Governor of the Reserve Bank gave a fairly clear hint that the board is set to cut the cash rate and other key policy rates at its October board meeting,’ he said.

Australian home loan rates are already at very low levels, with the Launceston-based Bank of Us offering a 1.99 per cent fixed rate for two and three years – but only for Tasmanians.

HSBC has a 2.09 per cent, two-year fixed rate while UBank has a 2.14 per cent fixed rate one and three years.

While borrowers are getting a better deal, savers are being punished with the Commonwealth Bank, Australia’s biggest bank, last week cutting interest rates by 0.05 per cent on its Netbank Saver and Youthsaver products.

Commonwealth’s Netbank Saver now has a rate of just 0.9 per cent. 

Canstar’s group executive of financial services Steve Mickenbecker said savers were being punished.

The Reserve Bank's Deputy Governor Guy Debelle confirmed negative interest rates had been considered. 'A fourth option is negative rates,' he said

The Reserve Bank’s Deputy Governor Guy Debelle confirmed negative interest rates had been considered. ‘A fourth option is negative rates,’ he said

‘A cut of 0.05 per cent to your savings account may not sound like a lot on its own, but when it’s piled on top of multiple cuts this year it all adds up to a heavy drag on savings goals,’ he said.

‘Savers must be feeling like the proverbial frog in the saucepan. 

‘Rates have drifted down in steps, conditioning savers to a low rate environment, but ultimately delivering a blow to returns on savings.’

In October 2019, three months before the first case of COVID-19 came to Australia, Reserve Bank Govenor Philip Lowe endorsed the idea of negative interest rates.

He co-authored a paper for the Bank for International Settlements, a Swiss-based group run by the world’s central banks, suggesting the policy had worked where it had been tried.

‘Central banks judged that negative policy rates contributed to the achievement of their policy goals and that their side effects have been contained,’ Dr Lowe said. 

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