Back to the '30s, interest rates plumb the bottom

Reserve Bank doesn't have much firepower left


Agribusiness
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It's time the government took advantage of low interest rates, says NSW Farmers.

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THE Reserve Bank of Australia has basically exhausted all practical levers to stimulate the Australian economy and it is time the federal government stepped up, says NSW Farmers economist Ash Salardini.

With interest rates matching the Great Depression of the 1930s, Mr Salardini believes if the government can identify productive investment it would make sense to go into debt to create long-term economic efficiencies.

He said obvious targets were regional freight supply chains, agricultural industry strategy and water management, and it was the perfect time for clear fiscal policy that made sense relating to these objectives.

"What a privileged position for the government to improve the situation in a low-interest environment," said Mr Salardini.

"But what we have is the government's refrain 'budget surplus, budget surplus, budget surplus'."

He said from an economist's perspective it was the time to look beyond the objective of a budget surplus.

"We need bigger thinking, the government has just won three years' clear mandate and the ball is in its court."

Rural Bank chief financial officer Will Rayner said the official cash rate was at "emergency setting" and most economists were expecting at least one more cut, but the RBA would probably allow some time for the effects of the last two cuts to become evident.

Mr Rayner said what had surprised him was the prevailing strength of the Australian dollar, which at noon yesterday was trading at 70 cents to the US dollar.

The current low-interest environment means Regional Investment Corporation loans stack up against commercial banks when it comes to sourcing funds for equipment or capital investment, said Mr Salardini.

He said monetary policy had not yet proven to be a huge lever and while further cuts might make some marginal activity viable, given low interest rates have prevailed for a decade, that was unlikely.

"It's good if you have the cashflow to secure loans," he said, but most farmers' cashflow was pretty low and many were living in "survival mode".

NSW Farmers president James Jackson backed his chief economist, saying the economy was turning down and now was the time to spend money.

"Economic stimulus west of the mountains is pretty much required," he said.

And the government should be looking to do whatever it can resolve the international trade war, he said.

"Trade is fundamental to our fortunes, Australia is one of the most globally exposed countries on the planet, we can't rely on our domestic economy."

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