Negative Interest Rates – are they coming to Australia?

There is a lot of news at the moment of further interest rate cuts to be delivered if Australia does in fact lurch into its first recession in almost 30 years. Typically it requires cuts of approx 4% to home loan interest rates to get the domestic economy back into growth mode. That’s well and good when home loan interest rates were at close to 18% during the “Recession we had to have” according to the prime minister of the day, Paul Keating. During the 2008-2010 Global Financial Crisis (GFC) home loan interest rates were up at around 9.5% variable. Now home loan interest rates are at around 3% to 3.5% variable so does this mean that they may dip to -0.5% or even lower?
It’s an exciting but scary thought. It’s terrible news for people with cash savings stored at the bank and needing a return on that money to live on. It will push many people into buying shares that pay dividends and more property. It will cause massive asset bubbles which is not a good thing. Interest Only loans may become very popular again if the bank is going to pay you each month to have a loan. Property prices could boom if people are being paid to buy houses.
More likely is that banks won’t pass on cuts in full in their quest to maintain record profits. Australia as a lucky country still has much going for it such as tourism, iron ore, coal, educating overseas students, farming industries, more record immigration to support housing and construction, service industries and specialist manufacturing. Yes there may be a downturn, but unlike negative home loan interest rates launched in Denmark, I don’t think we will see negative home loan interest rates here anytime soon.