Financial expert issues a dire warning as interest rates are slashed to historic lows

A financial expert has issued a warning ahead of the Reserve Bank of Australia’s expected cut of the interest rate to historic lows on Thursday afternoon. 

Canstar editor-at-large Effie Zahos said that cutting the cash rate along with other measures will form the government’s plan to keep workers in jobs and businesses afloat during the coronavirus quarantine lockdown. 

The RBA usually makes interest rate announcements on the first Tuesday of every month but will make a special out of sync adjustment. 

Ms Zahos said the interest rate levels will be cut to an ‘unprecedented’ 0.25 per cent but said the RBA has been ‘pretty clear’ that is the lowest they will go. 

The cash rate was already lowered to 0.50 per cent on March 4. 

‘Is that enough? not enough at all,’ Ms Zahos told the Today program on Thursday. 

Canstar editor Effie Zahos said financial experts are concerned about the economy 

She said the RBA will also announce other measures in addition to the lowering the cash rate. 

‘They’ve been touting around for ages quantitative easing. What does that mean in simple terms? They are going to print money to inject into the economy so people can spend and have credit,’ Ms Zahos said. 

Cutting the interest rate means Australians with mortgages will have more money in their pockets – which the government wants them to spend to keep money circulating. 

She also noted that while in the initial stages of the COVID-19 quarantine lockdown experts were concerned about a supply disruption with consumer goods, such as electronics for example, not being available. 

However, what is now likely to happen is a demand disruption where people are self-isolating and not wanting to spend money. 

‘The good news our economy is a lot better than other economies, we were talking about a surplus not long ago. Though I, along with every other person out there, is concerned is this enough?’ Ms Zahos said. 

ANZ economists have warned the economy could contract by as much as two per cent in the June quarter, risking a rise in the jobless rate to almost eight per cent from around five per cent now.

‘Workers in industries such as tourism, education and retail are already being laid off and this will only worsen under travel bans, cancellations of large events and social distancing,’ ANZ said in a research note to clients.

Finance Minister Mathias Cormann says the upcoming government economic package, which will follow $17.6 billion worth of support announced last week, will be ‘significant’.

‘The extent of the economic impact has been accelerating significantly,’ he told Sky News on Wednesday night.

The government is aiming for business-focused measures that cushion the impact of the crisis and may include cash payments or loan support for small and medium-sized businesses.

The government’s first stimulus package included $750 one-off payments for pensioners and welfare recipients, as well as grants of up to $25,000 for small business.

The Australian Chamber of Commerce and Industry has recommended a range of measures for the second package, including help for businesses to keep employees as well as concessional loans to assist with cash flow restraints.

Australia’s small business and family enterprise ombudsman Kate Carnell has urged the government to include sole traders in its support package, as they can’t access the grants on offer.

Senior Labor figure Penny Wong said the second package needed to be comprehensive and include help for casual workers.  

The government wants consumers to spend and keep money circulating through the economy