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Negative interest rates: What are they and what would they mean for you?

One of Australia’s most senior economists is calling on the Reserve Bank to consider introducing negative interest rates.

Westpac chief economist Bill Evans is pushing the move, which he says will drive down the Australian dollar and encourage investment.

But what does it mean?

Economist and partner at Deloitte Access Economics, Nicki Hutley, said negative interest rates wouldn’t greatly impact individual Australians.

“Negative interest rates don’t usually affect individuals,” she told 3AW’s Ross and John.

“This is a policy tool to encourage greater lending by the bank, so it’s about the rate that the Reserve Bank charges to institutions.”

Ms Hutley said the move to negative interest rates would discourage banks from leaving their money with the Reserve Bank overnight, and encourage greater lending instead.

“It says to the banks ‘don’t put your money over here, lend more out, have less on hand. Lend more out to the business community, also  individuals’,” she said.

But there’s one big problem with the plan to encourage investment by introducing negative interest rates, according to Ms Hutley.

“You also have to have demand,” she said.

“Businesses have to want to borrow, individuals have to want to borrow, and we know of course there’s a whole lot of stuff going on with coronavirus and people are in trouble.

“They may want to borrow, particularly in September when JobKeeper gets lifted, but whether the banks want to lend to them, whether it’s a safe bet to lend to them … there’s a really big question mark over how effective that will be.”

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