“Get ready for negative rates” – APRA

Regulator points to the risk of not being prepared

“Get ready for negative rates” – APRA

Although the RBA has said a negative cash rate would be highly unlikely, the Australian Prudential Regulation Authority has reportedly written to Australian banks to ask them to ensure their systems would cope with negative rates should these occur.

The move is a reminder of Y2K fears – when the world suddenly became aware of problems that could arise as computer systems ticked over from 1999 to 2000.  In the US alone, companies spent upwards of $100 billion scrambling to get their systems ready for the end of the millennium, much to the delight of IT consultants.

The good news, according to APRA, is that Australia’s banks have, in the main, replied that their tech is, in fact, able to handle negative rates on Treasury products. The bad news is that lending products may not be as easy to handle immediately – and there may be some costs and hoop jumping required to get there.

Negative rates already exist in parts of Europe and Japan, and despite most economists agreeing that rate hikes are likely in Australia, APRA has asked for feedback by August 30 before laying out its requirements by the end of October.

And APRA is taking the matter seriously – it has explained that it considers failure to prepare for negative or zero rates to be in contradiction to Prudential Standard CPS 220 Risk Management (CPS 220).

How do global interest rates compare?

Country

Rate

Switzerland

-0.75

Denmark

-0.5

Japan

-0.1

Austria

0

Belgium

0

Bulgaria

0

Cyprus

0

Estonia

0

Euro Area

0

Finland

0

France

0

Germany

0

Greece

0

Ireland

0

Italy

0

Latvia

0

Lithuania

0

Luxembourg

0

Malta

0

Netherlands

0

Norway

0

Portugal

0

Slovakia

0

Slovenia

0

Spain

0

Sweden

0

Singapore

0.07

Australia

0.1

Israel

0.1

Poland

0.1

United Kingdom

0.1

Canada

0.25

Cape Verde

0.25

Fiji

0.25

New Caledonia

0.25

New Zealand

0.25

Peru

0.25

United States

0.25

Albania

0.5

Chile

0.5

Czech Republic

0.5

Jamaica

0.5

Macau

0.5

Oman

0.5

South Korea

0.5

Thailand

0.5

Cambodia

0.71

Costa Rica

0.75

Paraguay

0.75

Hong Kong

0.86

Hungary

0.9

Bahrain

1

Iceland

1

Saudi Arabia

1

Serbia

1

Taiwan

1.13

Macedonia

1.25

Romania

1.25

Kuwait

1.5

Morocco

1.5

United Arab Emirates

1.5

Colombia

1.75

Guatemala

1.75

Malaysia

1.75

Mauritius

1.85

Barbados

2

Philippines

2

Cuba

2.25

Belize

2.3

Comoros

2.44

Croatia

2.5

Jordan

2.5

Qatar

2.5

Moldova

2.65

Algeria

3

Dominican Republic

3

Honduras

3

Laos

3

Libya

3

Papua New Guinea

3

Seychelles

3

Bosnia

3.11

Cameroon

3.25

Central African Republic

3.25

Chad

3.25

Equatorial Guinea

3.25

Gabon

3.25

Republic of the Congo

3.25

Indonesia

3.5

Lesotho

3.5

South Africa

3.5

Trinidad and Tobago

3.5

Botswana

3.75

Namibia

3.75

Swaziland

3.75

El Salvador

3.82

China

3.85

Bahamas

4

Benin

4

Burkina Faso

4

Guinea Bissau

4

India

4

Iraq

4

Ivory Coast

4

Mali

4

Niger

4

Senegal

4

Togo

4

Vietnam

4

Bolivia

4.07

Brazil

4.25

Mexico

4.25

Rwanda

4.5

Sri Lanka

4.5

Uruguay

4.5

Bangladesh

4.75

Guyana

5

Mauritania

5

Nepal

5

Tanzania

5

Brunei

5.5

Russia

5.5

Mongolia

6

Azerbaijan

6.25

Tunisia

6.25

Armenia

6.5

Kyrgyzstan

6.5

Uganda

6.5

Burundi

6.6

Bhutan

6.86

Ethiopia

7

Kenya

7

Maldives

7

Myanmar

7

Pakistan

7

Ukraine

7.5

Egypt

8.25

Belarus

8.5

Congo

8.5

Zambia

8.5

Kazakhstan

9

Sao Tome and Principe

9

Ecuador

9.33

Georgia

9.5

Madagascar

9.5

Nicaragua

9.51

Gambia

10

Lebanon

10

Guinea

11.5

Nigeria

11.5

Malawi

12

Tajikistan

12

Mozambique

13.25

Ghana

13.5

Sierra Leone

14

Uzbekistan

14

South Sudan

15

Sudan

16.3

Haiti

17

Iran

18

Turkey

19

Angola

20

Liberia

25

Suriname

25

Yemen

27

Argentina

38

Zimbabwe

40

Venezuela

58.67

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