Where there is a case for negative interest rates

EXPERT OBSERVER

Westpac's chief economist Bill Evans says there is certainly a case for negative interest rates in Australia, despite the RBA previously suggesting they have gone as low as they intend to go.

"What we have to bear in mind is the Reserve Bank is a long way from its objectives, and expects to be a long way from its objectives right out to the end of its forecast period", Evans said in an update on Westpac IQ.

The forecast period is June 2022.

The RBA want full employment, which is around 4.5 per cent, and inflation in the two to three per cent range, however the Reserve Bank are forecasting the unemployment rate will be at 6.5 per cent mid-way through 2022.

"Markets have been flirting with the idea of negative interest rates in a number of economies", Evans said. "The US the UK really stand out.

"Of course we know EU has had negative interest rates since 2014 and Japan has had negative interest rates for a long time as well.

Evans says markets are predicting by the first half of next year, US interest rates will be down to 0, the UK will be down to 0, NZ will be down to 0.

But Lowe said in November, and reaffirmed in recent months, that lowering the cash rate would be extraordinarily unlikely.

To watch Evans full explanation, click below.