Mark Burrows, Nine News Sydney: For the first time, the Reserve Bank has spelled out what it will do when official interest rates hit zero – and it includes printing more money to keep the economy afloat, and keeping rates at record lows for years to come.
Ross Greenwood: The Reserve Bank acknowledges there is a ‘Plan B’ when interest rate cuts run out.
Philip Lowe, RBA Governor: Many central banks introduced unconventional tools – like negative rates and asset purchases.
Greenwood: Get that?
Negative interest rates – where investors pay to keep their money safe in government deposits.
And asset purchases – where the Reserve Bank effectively prints money to drive more cash into the economy.
Andrew Ticehurst, Chief Economist Nomura: So they are thinking about what else they can do to try and support the economy
Greenwood: The research was done by Swiss-based Bank for International Settlements – owned by 60 of the world’s central banks- including our own Reserve Bank.
And Philip Lowe is chair of the committee that did that research.
Lowe: One key lesson is that the tools most effective when used together with a broader set of policies, like fiscal and prudential measures.
Greenwood: To decode that means tax cuts, infrastructure spending, and freeing up lending – but only if government acts.
Powerful forces have already warned the reserve Bank has chopped rates too hard, too fast.
John Howard, Former Prime Minister: If you cut them too far, you get rid of all the petrol in the tank
Greenwood: But if interest rates went to zero and the Reserve Bank had to take these emergency actions, there would be a real concern if ever interest rates had to rise very sharply.
In the event of that, heavily indebted families and businesses could be wiped out .
Our 28 year track record, without a recession, would also end – almost instantly.
But any rate rise it seems now is a very long way off.
Ticehurst: Certainly for the next number of years, it seems very clear that interest rates are going to stay very,very low.
Greenwood: Ross Greenwood, Nine News