Australia, insurance, car, home, live, holidays

Westpac chief economist Bill Evans said negative rates would enable the nation's major banks to cut their lending rates,helping the economy by enabling businesses and mortgage holders to borrow at extremely low cost.Credit:Lisa Maree Williams

As recently as last week,RBA governor Philip Lowe said it was highly unlikely the bank would follow the lead of countries such as Sweden,Denmark and Japan in taking official rates below zero. New Zealand's central bank is also increasingly likely to consider negative rates.

The RBA,which is expected to hold official rates at a record-low 0.25 per cent this month,is predicting the economy to contract by up to 10 per cent in the June quarter,unemployment to remain elevated for the next two years and inflation to stay subdued even longer.

Mr Evans said negative rates would enable the nation's major banks to cut their lending rates,helping the economy by enabling businesses and mortgage holders to borrow at extremely low cost. They would also take pressure off the Australian dollar,which on Monday reached its highest level since March at US67¢.

"A serious case can be made for the RBA to consider further cuts and entering negative territory for the cash rate if it becomes apparent that the economy is deteriorating even more than is currently expected,"he said.

"A small open economy with significant foreign liabilities would certainly see a substantial improvement in the competitiveness of the currency with further rate cuts when other major markets are anchored at their effective lower bounds."

Negative rates could also help the RBA meet its 2 to 3 per cent inflation target.

The Melbourne Institute's monthly inflation gauge on Monday showed prices falling by a record 1.2 per cent in May,taking annual inflation to just 0.1 per cent. Its measure of underlying inflation dropped by 0.3 per cent to be 0.5 per cent over the year.

The RBA has already warned inflation is likely to turn negative because of falling demand and policy interventions such as free childcare.

At the start of the pandemic shutdown there were fears of house prices tumbling by more than 10 per cent in what would amount to a huge hit to the property market.

But CoreLogic on Monday reported house values last month fell by 0.6 per cent in Sydney and 1.1 per cent in Melbourne. The value of units also dropped in both cities,down 0.1 per cent in Sydney and 0.6 per cent in Melbourne.

Nationally,dwelling values were down by 0.4 per cent,although there were some outliers,with Canberra up 0.5 per cent and Hobart lifting 0.8 per cent.

Despite the fall,house values this year are still up by 4.2 per cent in Sydney and 1.6 per cent in Melbourne. Over the past 12 months,Sydney values have climbed 15.6 per cent while in Melbourne they are still 12.2 per cent in front.

CoreLogic's head of research,Tim Lawless,said given the headwinds from the pandemic shutdown,the national drop of 0.5 per cent showed the overall property market had performed relatively well.

But he cautioned that prices might come under pressure later in the year.

"Eventually,government stimulus will wind back and borrower repayment holidays will expire,"he said."In the absence of these policies,housing values could come under some additional downwards pressure if economic conditions haven't picked up towards the end of the year."

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