NAB chief executive Philip Chronican says a Reserve Bank rate cut next week would be unlikely to have much impact on the Australian economy.
The chances of a cash rate cut from the RBA’s long-standing record low increased after inflation slowed to zero in the first quarter, but Mr Chronican doesn’t believe a move by the central bank would do much to the overall picture.
Mr Chronican says that with the rate having sat at 1.5 per cent since August 2016, the impact on consumption of the 0.25 percentage point cut many expect on Tuesday would be negligible.
“When interest rates are at absolutely very low levels, the effect of further changes in interest rates are relatively muted,” Mr Chronican said on Thursday.
“So I don’t expect, whether there is or isn’t an interest rate change in the next little while, that it will have much effect and I don’t think the last two or three changes had much effect either.”
ANZ CEO Shayne Elliott this week joined economists in suggesting a rate cut could stimulate the economy by reducing loan repayments for borrowers, leaving them with additional cash to spend elsewhere.
There’s also the chance it could stimulate demand for credit if banks were to pass on the cut via product rates, but Mr Chronican is unconvinced.
“People who wish to borrow aren’t going to have a material change in their risk appetite as a result and it has the opposite effect on investors and savers,” Mr Chronican said.
“So I don’t expect any rate change to have a material effect.”