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The Reserve Bank could still go negative

The Reserve Bank might yet go negative

Few people expected the Reserve Bank to adjust its cash rate at its first meeting of the year today, and for good reason. But it isn’t a commitment not to cut the cash rate. A further cut in the cash rate to take it below its present all-time low of 0.10% would turn the cash rate negative. It has always been positive, at times very positive. Ten years ago it was 4.75%. Then, as now, it was used to help set every other rate. But there’s no reason why it couldn’t be negative. Borrowing (accepting deposits) entails costs. If the banks offered funds are offered more than they need, they’ll charge for accepting them.

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