Question

Why might interest rate cuts of March 2020 not have the desired effect on the Australian economy?

Answer 1

Interest rate cut of March 2020 not have the desired effect on Australian economy because the latest rate cut will make taking new loan cheaper. While availing a loan linked to an external benchmark 2 compare the spread and risk premium charged by by the banks over the the above and external benchmark to get the cheaper interest rate. Cutting interest rate is often portrayedas both desirable and an action that has little in the way of long-term consequences.while there are certainly situation in which reducing the current rate of interest is helpful to the economy it should never be viewed as a quick and simple fix that will not have some consequences at the end of the day. Cutting interest rate is something that just about every country has done from time to time.while some people believe that the action of cutting interest rate is always a good thing that is not necessarily the case. While reducing interest rate can certainly have beneficial effects for sun portions of the economy there is also the potential to damage other sectors.

Recent direction of Central Bank of Australia to lower interest rate on Bank deposits has instigated debates among economists and experts of different stripes on the effort of the rear move on curbing inflation and boosting production due to covid-19. Most experts subscribed to the the conventional economic theory that lower interest rate translate into more liquidity flowing into manufacturing whitch by extension arguments the key production sector and helps curb inflation, some analysis hold different opinion. The latter note that due to the unfavourable economic condition the country is presently plugged with money moving out of bank could possibly land in less profitable territory compared to production like the highly controversial inherently speculative and an productive foreign currency and gold coin markets.