Low interest rates are the new normal

The “normal” level of lending rates may be lower now and in the years ahead than it has been over the past two decades, says the Reserve Bank of Australia.

RBA deputy governor Philip Lowe made the statement last night in a speech at the Australian Business Economists' annual dinner. He argued that at least two factors could be keeping “normal” rates lower than they were in the past.

The first was that Australia's post-GFC economic strength had pushed its dollar higher against the currencies of weaker economies. The second was that, over the past two decades, first a credit boom and then a commodities boom had pushed up demand for funds and had, thus, inflated rates.

Lowe said it is “possible that normal lending rates will be somewhat lower for a period owing to the combination of global factors and the legacy of the credit boom.”

Source: Banking Day