CHARTS: This Researcher Thinks Lowering Australia's Interest Rate Won't Help

Many economists are expecting another interest rate cut before the end of the year, but one University of Wollongong researcher says going lower than the current historic low of 2.75% won’t do much good.

In a post on The Conversation today, former ANZ, ING and Erste Bank exec Paul Mazzola argued that low interest rates in Japan and the US had failed to boost loans to the private sector and GDP growth.

Here’s what happened in Japan, which returned interest rates to zero during the height of the GFC in 2007-08:

And here’s what happened in the US, where Mazzola says the Fed’s quantitative easing policies have had little impact on credit and GDP growth:

Even if the Australian dollar falls, Mazzola says manufacturing and mining firms may shy away from investing further in Australia in case the dollar rises again.

Despite a low interest rate, business lending has declined in Australia, he says. Meanwhile, personal credit has grown, putting the nation at risk of a property asset bubble.

Mazzola says the Government should focus on boosting “innovation and technology-based industries” that would be relatively insulated from foreign exchange shocks instead of using “quick fix monetarism” to try compete in traditional manufacturing industries.

More on the Conversation.

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