The Reserve Bank of Australia has urged businesses to stop waiting for zero interest rates and take advantage of the current record low interest rates to invest and grow.
In a speech made at the Australian National University, the RBA’s governor, Dr Phillip Lowe (pictured), told businesses the current environment could be as good as it gets, so it’s time to spend now.
“At low interest rates, many investments that didn’t make sense at higher interest rates should now make sense,” Dr Lowe said.
This is especially so for investments with long-term payoffs, because future returns no longer need to be discounted as highly. This means that low interest rates provide the opportunity to lengthen horizons and think about projects with really long-term payoffs.
While alluding to the Reserve Bank of Australia’s willingness to further ease credit, he all but ruled out rates falling below zero and reiterated the need for spending.
“The Board is prepared to ease monetary policy further if needed. Having said that, it is extraordinarily unlikely that we will see negative interest rates in Australia,” Dr Lowe said.
The flow-on effect from lower interest rates being higher asset prices and debts are not a concern for the central bank, which indicated rising housing prices are not a problem unless they pick up a lot.
“Credit growth is modest, investor credit growth is still negative, so the outstanding credit owed by investors is still declining and credit growth to owner occupiers is only modest,” he said.
“That’s our main focus on what is going on with credit growth and not what is going on with the asset prices per se.”.
The governor pointed out that other major economies, including Germany, France and Japan, are issuing largely negative bonds.
While refusing to say whether Australia will follow, the governor was quick to point out that Australia will need to keep rates low for an extended period of time to reach its inflation target of two to three per cent.
Despite a likely lengthy run of low interest rates, the governor believes monetary policy has helped the Australian economy.
“Over the course of this year, we have lowered interest rates three times to a record low of three quarters per cent,” Dr Lowe concluded.
“We are confident that these reductions are helping the Australian economy and supporting the gentle turning point in economic growth.”
Cameron Micallef is a journalist at Nest Egg, writing primarily about personal wealth and economic markets.
Prior to this, Cameron worked for Australian Associated Press. He graduated from the University of Wollongong with a double degree in communications and commerce.
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