A return to the 1950s "glory days" is on the cards: CommSec's Craig James

A return to the 1950s "glory days" is on the cards: CommSec's Craig James
A return to the 1950s "glory days" is on the cards: CommSec's Craig James

The last time that money market interest rates were at current levels was 53 years ago. In March 1960 the minimum interest rate applied on loans accepted by authorised dealers on the short term money market was 2.69% with the maximum rate of 3.38% and an implied weighted average rate of 2.70%.

Certainly very low interest rates were common through the 1940s, 1950s and most of the 1960s. For instance in 1952, the 3-month commercial bank deposit rate was just 0.71 per cent and even in 1956 it had lifted to only 1.25%. Housing loan rates held at 5.00% through 1959 and 1960. Trading bank overdraft rates were between 5.00-6.00% in the late 1950s/early 1960s.

All these gems of information are contained in the hardcopy Reserve Bank Statistical Bulletins of the era and the forerunner – the Commonwealth Bank of Australia Statistical Bulletins.

Of course a key reason why interest rates were low was because wages and prices were under control. In the 1958/59 year, wages rose by 2.5%, retail prices rose by 2.6% and the consumer price index rose by 1.9%.

Do these growth rates seem familiar? Wages are growing by 3.4% currently with inflation around 2.5%. Certainly other indicators are a bit different with the economy growing 7% in 1958/59, but slowing to 4.4% in 1959/60. And unemployment was hovering near 1-2% in the late 1950s/early 1960s.

So could a cash rate near 3.0% become the ‘new black’? If inflation sticks near 2.5% and if Aussies continue to apply a conservative approach to taking on debt, a new economic glory period could be ushered in, similar to that which existed in the 1950s.

Craig James is the chief economist at CommSec.

Craig James

Craig James

Craig James is the Chief Economist at CommSec, interpreting ‘big picture’ economic and financial trends.

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