03 Mar Radical new approach needed to arrest Australian economic landslide

The Reserve Bank this week voted to reduce interest rates by a further 25 points to a new record low of 0.5%, but it is not the answer to the country’s flat-lining economy.

In fact, I’d almost argue it is counter intuitive.

It seems to me that the RBA is simply following consensus by making this change – let’s hope the new rate will be passed on in full by the majority of the big banks.

The banks will try to find a happy middle ground between the borrowers, depositors and shareholders.

Will borrowers even spend their interest savings, as they are being encouraged to, or will it be used for further debt reduction? It’s hard to say given the unpredictable climate we currently live in.

I believe the RBA should have kept their powder dry, as they have for the past four months. It would have been far more feasible to wait for the full impact of the Coronavirus to become apparent before making any hasty decisions.

At this point, the interest rate is too low to gain any traction. It is time for the Federal Government to take the initiative and propose radical new approaches to stimulate the economy.

This could include implementing a unique tax incentive for businesses whereby for every dollar they spend they get a tax break of $1.25 – $1.50.

The way things are going, it won’t be long before the consumer is paying banks simply to protect their money. We cannot allow this to happen.

Something needs to be done.