- The RBA signalled last week that rates are not going to be lowered any time soon.
- But the rest of the world is still cutting and driving the interest rate curve below zero.
- Australia might seem different but it cannot avoid the tractor beam of weak global growth and lower global rates.
The economic crisis has caused some unprecedented global problems. The strange shape that global markets have taken since the 1970s means that booms and busts will probably never be the same again. Volume, technology, globalisation and the rise of fiat currency have all played their part. But now that the system has been shaken to its core, central banks have been forced to launch an unprecedented global response.
The response has also been unprecedented in its unconventionality. The US Federal Reserve (Fed), the Bank of England (BoE), the Bank of Japan (BoJ) and the European Central Bank (ECB) have either taken cash rates down to zero or close enough that money market funds are being closed. While this has forced investors back into riskier assets and debt markets, not everyone of course is happy, seeing prudent savers being penalised and profligate borrowers subsidised.
To read on about how to position your term deposits in this deflationary world take up your free 21 day trial of Macro Investor. Greg McKenna is Chief Investment Officer at Macro Investor, Australia’s independent investment newsletter covering stocks, trades, property and fixed interest. You can follow Greg on Twitter.