Central banks are not ‘out of ammo’

This year has seen a growing concern that central banks are out of ammo when it comes to reinvigorating global growth and preventing deflation.Some worry that rate cuts have just made things worse by cutting the spending power of retirees and forcing those nearing retirement to save more. There are several points to note in relation to this. First, the level of household deposits in banks in Australia at around $0.9 trillion is swamped by the level of household debt at $2.2 trillion. So the household sector is a huge net beneficiary of lower interest rates. Second, the responsiveness to changes in spending power for a family with a mortgage is far greater than for retirees. Third, the proof is in the pudding. The fall in interest rates has helped the economy rebalance as mining investment has collapsed: first via a pick-up in housing construction and more recently via growth in consumer spending of close to 3% p.a. Read more in Oliver’s Insights: (VIEW LINK)