The balance between economic growth and ensuring low inflationary pressure is a finely balanced art form.
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If the Reserve Bank increases interest rates to reduce inflation, it will usually cause a fall in aggregate demand, lower economic growth and could result in recession and or higher unemployment.
The Australian economy is slowing.
Economic growth is the lowest it has been in the 10 years since the Global Financial Crisis.
Wages are stagnant, 1.8 million Australians are looking for work or more work and cannot find employment certainty.
Australia's household debt is high, and living standards are going backwards.
Consumer spending continues to decrease with Australians who are in a position to spend are instead making a conscious decision to save.
Last week the Reserve Bank decided to keep interest rates at a record low of 1 per cent after two cuts in June and another cut in July.
It also downgraded its economic growth and inflation forecasts.
Reserve Bank Governor Phillip Lowe has said that it is likely interest rates could fall as low as 0.5 per cent in the coming months and that if the world moves to negative interest rates, Australia must consider them.
The global economy is unsettled with trade tensions between the US and China continuing to drive down stock markets and exchange rates.
Furthermore, interest rates are being lowered in the US and political instability in Europe is creating particularly fragile circumstances.
The Australian dollar has also hit a 10-year low of 66.77 US cents.
The question is, should the Reserve Bank of Australia employ negative interest rates to address the slowing economy?
Central bank interest rates are negative in Japan (-0.10 per cent), Sweden (-0.25 per cent), Denmark (-0.65 per cent) and Switzerland (-0.75 per cent).
Ideally, negative interest rates should spur the growth of credit; assuming banks pass on their lower interest rates to borrowers, cheaper loans should result in increased borrowing.
Ideally, negative interest rates should spur the growth of credit; assuming banks pass on their lower interest rates to borrowers, cheaper loans should result in increased borrowing.
Further, negative interest rates also lower the interest burden on debt.
This has occurred internationally once they have been imposed, however, the long-term effects over the economy are less determined.
Any monetary policy does not have an instantaneous impact on the real economy, so it makes it difficult to identify the impact of negative interest rates.
Whether negative interest rates are effective or not depends on the macroeconomic environment, other policy measures undertaken by central banks, and how long rates are expected to be negative.
More research is required and the outcomes will vary depending on the economic circumstances within a particular economy.
However, most of the changes were navigated smoothly in countries that have implemented mild negative rate policy, however, countries have been unable to avoid hoarding and, as a result, the ability to protect bank profitability if rates go deeply negative.
The importance of a strong central bank and banks should never be underestimated.
Last week New Zealand's Reserve Bank decided to cut interest rates by a full half of a per cent to 1.0 per cent, placing more pressure on Australia to take more action.
Some economists are of the view that further rate cuts will lose their effectiveness over the economy with banks unwilling to pass them on.
If the banks are unwilling to pass on the cut, the government may be forced to intervene with direct injections of cash into the economy with tax cuts or similar measures employed during the GFC to keep the economy stable.
Australians are feeling like no matter how hard they work they just can't get ahead because their wages aren't keeping up with skyrocketing energy, health and food costs.
The Morrison Government repeatedly assured voters that the economy would remain strong under its government.
However, the Morrison Government is in denial about the weakness in the economy.
The Liberals spend their time playing politics and talking about Labor instead of coming up with a plan to turn the economy around.
The government must focus on ensuring lower unemployment and better wages for all Australians.
- Helen Polley is a Tasmanian Labor senator.