subscribe to our newsletter

RBA open to trimming record-low cash rate

The central bank has left the door open to further reductions to the cash rate but has maintained its stance on negative interest rates.

In an address to the Australian Industry Group on Tuesday (22 September), deputy governor of the Reserve Bank of Australia (RBA) Guy Debelle outlined the monetary policy options available to the central bank if required to achieve its targets of full employment and 2-3 per cent inflation.

The monetary policy options listed by the deputy governor included further bond purchases in the secondary market, increasing the money supply to lower the exchange rate, and further reductions to the cash rate.

Regarding the latter option, Mr Debelle said the RBA could “lower the current structure of rates” without slipping into negative territory.

“The remuneration on [exchange settlement account] balances is currently 10 basis points, the three-year yield target is at 25 basis points and the borrowing rate of the [Term Funding Facility] is also 25 basis points,” he noted.


“It is possible to further reduce these interest rates.”

However, echoing remarks made by RBA governor Philip Lowe, Mr Debelle downplayed the effectiveness of negative interest rates.

“The empirical evidence on negative rates is mixed,” he said.

“In the short term, they can contribute to a lower exchange rate. In the medium term, the effectiveness can wane, including through the effect on the financial system.”

He continued: “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. That is, the income effect can be larger than the substitution effect.


“To date, those economies with negative policy rates have not lowered them further. Instead, they have eased monetary policy settings through other means.”

However, the central bank has not entirely dismissed a move to negative interest rates, given ongoing uncertainty in the domestic and global economic environment.     

Governor Lowe told the House of Representatives standing committee on economics in August: “In a world so uncertain and so fluid, I don’t think it’s prudent to rule it out, but I think it’s extraordinarily unlikely.”

[Related: RBA governor defends stance on negative interest rates]

RBA open to trimming record-low cash rate
RBA open to trimming record-low cash rate

Charbel Kadib

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

Latest News

US-based global asset manager Ares Management has made a non-binding conditional proposal to bid for 100 per cent of AMP Ltd shares. ...

The major bank’s FY20 cash profit has plummeted 42 per cent on the prior comparable period, driven by full-year credit impairment charges ...

A former property developer has been found guilty of fraud in relation to obtaining funds from SMSF investors following an ASIC investigatio...


Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.


LATEST PODCAST: Court cases and penalties

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.