Are interest rates about to be cut to ZERO? Mass construction worker and retail layoffs could see a ‘black swan’ scenario to deal with a spike in unemployment
- Accounting firm KPMG predicts interest rates in Australia could be cut to zero
- Fears shock global event, slowing local economy will force Reserve Bank’s hand
- The ANZ bank said rates would be slashed to zero if Australia fell into a recession
Interest rates in Australia could be cut to zero for the first time ever as unemployment rises and property prices plummet.
Accounting firm KPMG is predicting a previously unthinkable ‘black swan scenario’ where a global economic shock forces the Reserve Bank of Australia to act as it also grapples with an economic slowdown.
Construction work is already going backwards.
Diving house prices are also hitting the retail sector, as home owners and investors cut back on their spending, which could see interest rates cut to zero from an already record-low of 1.5 per cent.
Interest rates in Australia could be cut to zero for the first time ever as unemployment rises (Sydney Centrelink office pictured) and property prices plummet
KPMG chief economist Brendan Rynne said Australia would be on the cusp of a scenario, known as quantitative easing, where the central bank effectively prints money by buying bonds and securities to increase the supply of money.
‘We have that capacity, we don’t necessarily need to go into some sort of quantitative easing arrangement,’ Dr Rynne told the ABC on Thursday.
ANZ is expecting Sydney and Melbourne house prices to fall by 20 per cent from their 2017 peaks, and says zero interest rates are a possibility if Australia suffered its first recession since 1991.
‘If we fell into recession, then the RBA would have no choice but to cut the cash rate to something close to zero,’ the bank’s head of economics David Plank told Daily Mail Australia on Thursday.
Accounting firm KPMG is predicting a ‘black swan scenario’ where a global economic shock forces the Reserve Bank to cut rates down to zero as construction work dries up (stock image)
‘If it turned out that the economy was much, much weaker than we thought, then they’ll have to cut the cash rate well below one per cent and maybe even negative.’
Australian house rules
Sydney, down 10.9% to $902,786
Melbourne, down 10.6% to $740,425
Brisbane, up 0.1% to $540,750
Adelaide, up 0.9% to $464,584
Perth, down 5.3% to $465,120
Hobart, up 7% to $494,810
Darwin, up 2.3% to $502,023
Canberra, up 4.3% to $668,469
Source: CoreLogic detached median house prices in year to January 31
Australia’s construction sector is already under pressure, following a sharp slide in Sydney and Melbourne property prices since 2017.
The value of residential construction work done slipped by 3.6 per cent in the December quarter, Australian Bureau of Statistics figures released on Wednesday showed.
While Australia’s unemployment rate of five per cent is lower than usual, economists at UBS and AMP Capital fear it could soon rise to 5.5 per cent.
Westpac chief economist Bill Evans last week forecast two interest rate cuts this year, in August and November, which would take interest rates to one per cent.
Another four quarter of a percentage point rate cuts would take the Reserve Bank cash rate to zero for the first time ever.
Australia’s construction sector (Adelaide site pictured) is already under pressure, following a sharp slide in Sydney and Melbourne property prices since 2017
This would mirror what happened in the United States between 2008, at the height of the global financial crisis, and 2015 where the federal funds rate effectively stood at zero.
The European Central Bank has also set its main refinancing rate at zero since 2016.
Mr Plank said zero interest rates would be unusual for Australia but not globally, adding ANZ did not expect unemployment to rise sharply.
‘When the cash rate gets to zero and you have to think about other things, then unusual things happen,’ he said.