Anqi Li
Li-Kuang Chen
Siyao Song
Econ 5103
May, 22nd, 2016
Submission Question 10
(a). What factors may have led to the changes in interest rate taken by RBA in 2011-2015
(Tradingeconomics.com, 2016)
In 2011 the reserve bank of Australia decided to cut interest rates and continued to reduce them over the next 5 years. The RBA did this in response to a slowdown of the Australian economy as shown by the downward trend in monthly GDP growth, decreasing trade scale and lowering of commodity prices.
The factors driving the decisions made by the RBA would be the high currency rate and low inflation rate.
1. High currency rate
In 2011, the AUD exchange rate was over 1 AUD/USD and has been historically high. Due to the slower growth of …show more content…
House market
A fall in interest rates will cut he monthly cost of mortgage repayments. This will increase the demand of houses. And on the other hand, the cheaper cost of borrowing money will encourage companies to invest more money on building new houses to meet the increased demands.
(Tradingeconomics.com, 2016)
3. Employment:
To decrease the unemployment rate is one of the main objectives of easy monetary policy. When consumers spend more money on goods and services, businesses get more revenues. This make it possible for companies to upgrade their equipment and factories and to hire new workers. So during easy monetary policy, unemployment declines. As more people find jobs, they have more money to spend, which increases revenues to business and results in more jobs. (Tradingeconomics.com, 2016)
4. Exchange rate and export
Also, lower interest rate could affect exchange rate and net export. When interest rates go down, some foreign investor prefer to get their money out of the Australian banks and sell the Australian dollars, so the exchange rate of Australian dollars will fall. As a result, the Australia will be more competitive in global market and the exportation will go
Li-Kuang Chen
Siyao Song
Econ 5103
May, 22nd, 2016
Submission Question 10
(a). What factors may have led to the changes in interest rate taken by RBA in 2011-2015
(Tradingeconomics.com, 2016)
In 2011 the reserve bank of Australia decided to cut interest rates and continued to reduce them over the next 5 years. The RBA did this in response to a slowdown of the Australian economy as shown by the downward trend in monthly GDP growth, decreasing trade scale and lowering of commodity prices.
The factors driving the decisions made by the RBA would be the high currency rate and low inflation rate.
1. High currency rate
In 2011, the AUD exchange rate was over 1 AUD/USD and has been historically high. Due to the slower growth of …show more content…
House market
A fall in interest rates will cut he monthly cost of mortgage repayments. This will increase the demand of houses. And on the other hand, the cheaper cost of borrowing money will encourage companies to invest more money on building new houses to meet the increased demands.
(Tradingeconomics.com, 2016)
3. Employment:
To decrease the unemployment rate is one of the main objectives of easy monetary policy. When consumers spend more money on goods and services, businesses get more revenues. This make it possible for companies to upgrade their equipment and factories and to hire new workers. So during easy monetary policy, unemployment declines. As more people find jobs, they have more money to spend, which increases revenues to business and results in more jobs. (Tradingeconomics.com, 2016)
4. Exchange rate and export
Also, lower interest rate could affect exchange rate and net export. When interest rates go down, some foreign investor prefer to get their money out of the Australian banks and sell the Australian dollars, so the exchange rate of Australian dollars will fall. As a result, the Australia will be more competitive in global market and the exportation will go