Daily Commentary BY THE CURVE TEAM –

Britain Toys with Negative Rates

13th of October, 2020

As Australia has essentially ruled out negative interest rates in the near term, Britain is considering the possibility.

For some time, the Bank of England (BoE) has communicated that negative rates are a possibility. Yesterday, it was revealed the BoE had written to banks asking if they were prepared for a negative rate environment.

This is not to say negative rates are imminent. The request from banks is the BoE doing their due diligence on whether negative rates would be effective and viable.

Their conclusion will be consequential to Australia. Currently, the RBA does not view negative rates as appropriate as the costs of them outweigh the benefits. This has been re-affirmed in multiple speeches and meeting minutes since last year.

Should the BoE come to the opposite conclusion of Australia, there will be pressure for the RBA to re-consider their stance. Not only due to the new research, but because even lower rates overseas will put upward pressure on the Australian dollar, which the RBA have made clear would be a burden on an economic recovery.

Also, in Britain, Brexit negotiations will re-appear in headlines this week as the UK’s self-declared October 15 deadline is imminent. It is far from a hard deadline, but nonetheless the date will set some kind of accountability to the progress of negotiations.

Botched negotiations would add to global geopolitical tension at a time when the global economy is already struggling. Australia and China relations are the most immediate threat to us, especially with more reports of China reducing its purchase of Australian imports.

There are reports that Chinese officials have told businesses to stop purchasing Australian coal, our second largest export. Although it is not official policy, it adds to the products already being hit from the Communist Party.

Josh Stewart

Client Relationship Manager