A month ago, there was a large debate about what a rate cut meant for Australia, after much deliberation, a rate cut did come in to effect, with most banks passing on the cut to consumers, leaving a little more money in their pockets and a little less stress on their shoulders. With the cash rate at 2.25% the banks decided against making another cut. What does that mean? and why can we expect another cut in the coming months? We explain below.
1. Inflation is staying low: When inflation stays low, it is hard for an economy to grow. The RBA wants to get inflation levels up so that the economy doesn't stagnate. No increase of inflation would mean that the market stays flat, which is not what the economy wants, considering the most recent rate cut.
2. The global economy is struggling: Australia is really just a small piece inside a big puzzle. There have been economic issues that haven't been sorted for some time now, these include issues in Europe and the US. There is very little consumer confidence in Europe with countries like Greece still in a dire position.
3. Unemployment is not improving: One sign of an improving economy is when unemployment figures go down. Unfortunately that has not been the case for the Australian population. Unemployment is at a 12 year high of 6.4%
Instead of addressing this issue, the RBA seems convinced to continue lowering the cash rate so make money more 'available' by encouraging people to loan money and ultimately 'spend' money it will kick start money back in to the economy and give people jobs.
4. The AUD is being asked to step down: The AUD has pushed back up towards US80c which is not appealing for the RBA. By having the dollar go up, overseas investment seems more appealing, as well as international travel and online shopping. This puts less money back in Australia and wipes out the benefits of the last interest rate cut.
A combination of reasons explains why the RBA needs to cut rates again, unfortunately where the monetary rate is at currently isn't doing enough to stimulate the economy and making it hard to get everything back on track. An interest rate cut will attempt to pump more money back in to the economy and increase consumer spending. If it will work however is another story.
About the Author:
Todd Schulberg handles all things marketing for Homely.com.au - Living and breathing property, Todd has a keen interest in the movements in the market and how agents can utilise new tools and technology in order to be more connected. Using all things social, Todd suggests different ways that agents can engage and think outside the square with their marketing approach.