RBA governor in warning against low rates

by John Maguire21 Apr 2016
Governor of the Reserve Bank of Australia (RBA), Glenn Stevens, has advocated low growth instead of low rates at an investment conference in New York.

Stevens said that unprecedented low interest rates were a “big problem for savers”, wreaking particular havoc on retirement and superannuation returns.

"Here we are not talking about short-term trends. When everyone wants to save, the return to doing so will fall – that's economics," he said. "The issue is when long rates are very low for a long time. In such a world, the whole set of assumptions embodied in retirement income plans will be called into question.

"Increasingly we are hearing commentary about the difficulty or impossibility of defined benefit pension plans making good on their promises with long term rates of return being so low."
 
"The problem almost certainly is not confined to defined benefit plans. Even accumulation arrangements are predicated on some set of assumptions about future income needs and returns.

"It may take longer, but surely eventually many of the owners of these funds are going to feel disappointed."

Stevens added that while central bank policy had done all it could to combat the lingering effects of the Global Financial Crisis of 2008, governments and financial institutions should be aware that central policy was “always going to have limited capacity to accelerate the recovery.”

He went on to warn against injections of ‘helicopter money’ or quantitative easing.
 
Reflecting an overall tone of suspicion at easy ways out, Stevens said, “Desperate times call for desperate measures,” he said. “But are we that desperate?”
 


 

COMMENTS

  • by Patrick 21/04/2016 11:59:32 AM

    When did the RBA change it's name to Royal Bank of Australia?