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Originally Posted by Stardrifter_WA
We are still at 2.75%, much better than most other countries. US and Japan, two of the major economies are at or near zero percent. So, on that basis, we are still doing better than others. If you really want to know why the reserve banks drops interest rates, read the minutes. Mind you, it is very dry reading, so if you have insomnia, this might help 
It isn't as cut and dried as you suggest, there are global factors in play also. |
Agreed Peter, it is very complicated indeed, we have been heading downward for some time though and that says they are trying to get some drive back into the economy. Savings rates of individuals are higher than they have been for years. That says a lot about confidence. It is a tough equation, the Chinese mineral resources was a major underpinning on spending but it should not have been relied on so heavily. It could not be sustained when other economies were not buying as many products that were made in China. I saw that in early 2009 as every country was trying to avoid a depression by pouring billions and trillions into the domestic economies. As for the US and Japan; well both have had massive debt levels for years. The piper must be paid at some point. Time will tell.....
Mike, dropping or rapid rising interest rates are not as good as stable interest rates. Having high rates stems growth and is designed to do that. The recession we had to have caused a lot of pain but many years of growth too, the longest in our history. Dropping interest rates likewise are design to encouraging spending. That has been happening for the last 3 years. The mistake I think was raising interest rates at the start of the GFC. These small increases put the brakes on very quickly and then it became apparent we needed to drop the rates again. Far too late really. So this is not about a political point of view at all. Spending lots of money necessitated in the board's opinion for raised interest rates and that a readjustment would quickly follow. Spending should have slowed sooner and rate stability would have occurred sooner. It is all about how money is distributed in the economy and what flow rate it occurs at. Very complicated and requires a careful hand. Right now Australia needs to stop spending via the government and go for a balance in the money in and money out. Some borrowing is good, but not too much.