One expert is concerned that Donald Trump’s trade war with China may cause Australia’s cash rate to fall to zero. The Reserve Bank of Australia (RBA) currently expects global economic growth to continue to slow as the US president imposes new tariff barriers on Australia’s largest trading partner. Martin North of Digital Finance Analytics said that it is only a matter of time before Australia’s cash rate has dropped from a record 1% to zero. In the past, the United States, the European Union, Switzerland, and Japan all experienced what was called “Quantitative Easing (QE), but this has not happened in Australia. On August 20th, Martin wrote in a blog post: “What is certain now is that the weak global economic outlook may cause them (Australian Reserve Bank) to cut interest rates again. Quantitative easing is coming.”
Earlier this month, Reserve Bank of Australia President Philip Lowe admitted at a congressional hearing that although zero interest rates are unlikely to be realized, this is a possible scenario. If the quantitative easing policy is implemented, the Reserve Bank of Australia may increase the supply of basic money by purchasing medium- and long-term bonds such as treasury bonds, and inject a large amount of liquidity into the market. In other words, it will indirectly increase banknotes. For those who apply for a loan in Australia, this could mean a standard variable home loan rate of only 2%. About 3% of mortgage rates are currently at their lowest level since the 1950s. Although lower interest rates are good news for homeowners, it is bad news for retirees who live on interest on bank deposits. A series of interest rate cuts in June and July have yet to stimulate the Australian economy, and a looser monetary policy indicates that the Reserve Bank is still worried about rising unemployment. The August meeting minutes announced by the Reserve Bank of Australia on August 6th showed that “in view of the US-China trade and technological dispute escalation”, they are now less optimistic about the world economy than in May.
The bank said: “Members have noticed that the US government recently announced that it will impose a 10% tariff on China’s exports to the US for another $300 billion worth of products.” The weakening of China’s economy has also weakened its iron ore for Australia. Demand, since June, the price per ton of iron ore has fallen below $100 for the first time. The Reserve Bank of Australia said: “The Sino-US trade dispute and the slowdown in China’s domestic demand have had a bad impact on the growth of exports and investment in East Asia.” The Reserve Bank of Australia also expects Australia’s economic growth to remain low for at least the next two years. On average. In the past year, Australia’s gross domestic product (GDP) has only increased by 1.8%, the lowest growth rate since the global financial crisis 10 years ago. By the end of 2019, Australia’s inflation rate will rise slightly to 2.5%, to 2.75% in 2020 and to 3% in 2021. However, this level is still much lower than the 3.2% average after the last recession (1991 to 2018), and the Reserve Bank of Australia blamed this on weak consumer spending. The bank said: “Members also noted that the recent lower GDP growth expectations are mainly a reflection of lower-than-expected consumption growth in recent quarters.” The Reserve Bank of Australia also said this week. 10-year government bond yields will also fall to a record low of 0.88%. Last week, global stock markets panicked because 10-year US Treasury yields were lower than their 2-year Treasury yields. This situation is known as the yield curve upside down. This data successfully predicted the last US recession (2007-2009) and the economic recession in 1980, 1981, 1991 and 2001. .