Australian interest rates stay at record low

As expected the Reserve Bank of Australia (RBA) kept interest rates on hold at their meeting yesterday. They remain at the record low of 1.5%.

The RBA forecast that the Australian economy would continue to grow at about 3% in 2017, but that inflation remains below target. Therefore the RBA wishes to encourage the economy to grow faster by keeping it cheap to borrow and so encouraging consumer spending and investment, both components of Aggregate Demand.

Australian interest rates may stay the same for a while. The pressure to raise them might come from higher growth and a rapidly rising housing market. However the pressure to put them down will come from a rising exchange rate (based on events in the USA where interest rates will rise).

Monetary policy is a very important tool in managing the economy and works by affecting the total level of demand in the economy.

Australia's policy interest rate since 2014

Below are two links. The ABC one is for Year 12, the Channel Nine one for Year 11.

The ABC article is here

The Channel Nine article is here

VCE students must be able to explain policy decisions and economic events in Australia over the previous two years prior to their examination. Interest rate decisions (monetary policy) is one of the areas they must be familiar with and be able to explain why policy decisions (change interest rates etc) we made.

IB students can use this as an example of monetary policy too.