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The Consequences of Low Interest Rates for the Australian Banking Sector

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  • Anthony Brassil

Abstract

There is a vast international literature exploring the consequences of low interest rates for various banking sectors. In this paper, I explore how this international literature relates to the Australian banking sector, which operates differently to other jurisdictions. In the face of low rates, the profitability of Australian banks has likely been less adversely affected than what the international literature would predict, but the flip side to this is that the pass-through of monetary policy to lending rates may have been more muted. I then use a recent advance in macro-financial modelling to explore whether pass-through in Australia could turn negative—the so called 'reversal rate'—and find that the features of the Australian banking system mean a reversal rate is highly unlikely to exist in Australia.

Suggested Citation

  • Anthony Brassil, 2022. "The Consequences of Low Interest Rates for the Australian Banking Sector," RBA Annual Conference Papers acp2022-04, Reserve Bank of Australia, revised Dec 2022.
    • Handle: RePEc:rba:rbaacp:acp2022-04
    Note: Paper presented at the RBA's annual conference 'The Causes, Challenges and Consequences of the Low Interest Rate Environment', Sydney, 28–29 June 2022.
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    More about this item

    Keywords

    low interest rates; Australian banks; banking systems; monetary policy pass-through; lending rates; deposit rates; reversal rates; credit risk;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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