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How much longer will rates keep falling?

Thursday, August 11, 2016 - 01:48

The Reserve Bank of New Zealand has become the latest to cut interest rates to a record low as it struggles to head off deflation. But, as Laura Frykberg reports, there are signs some want to see an end to the extreme low rate environment.

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Another rate cut. This time in New Zealand. To a record low of 2 percent. Australia's too, was reduced earlier this month. And in Britain, last week, rates were cut for the first time since 2009 - another record low. (SOUNDBITE) (English) CHRISTIAN SCHULZ SAYING: "With growth now below the long term average of 3 percent for the sixth year in a row, you'd expect interest rates to fall." But how much longer can low rates be the answer? They've had them in the euro zone for awhile. The IMF now warning it could hurt the profits of banks. Making them more reluctant to lend. Some say it's time governments stepped up, and stopped relying on monetary policy. (SOUNDBITE) (English) CANADIAN IMPERIAL BANK OF COMMERCE HEAD OF FX STRATEGY, JEREMY STRETCH SAYING: "I think that is going to be a theme that is going to continue to take hold as we go through to 2017 and beyond, that's because of the relatively exhausted nature of monetary policy fiscal policy in conjunction with monetary policy needs to be the way forward." There are certainly signs the euro zone needs help from somewhere. The latest Reuters poll shows the outlook remains stable but lackluster. Inflation is forecast to remain stubbornly low, at just 0.3 percent this year and 1.3 per cent next. It won't reach the ECB's two percent target until 2019 - at the earliest. That's despite negative rates, and spending billions of euros in asset purchases for over a year now. Euro zone GDP isn't looking much better either - the expected average for the rest of the year also just 0.3 percent. New Zealand, Britain and the rest may have different issues to deal with - but it appears low rates alone may not be the answer.

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How much longer will rates keep falling?

Thursday, August 11, 2016 - 01:48