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Interest Rates in Australia Lowered to 0.75%

Australia is the latest country to lower their interest rate to an historic low. The Reserve Bank of Australia has cut the rate for the third time this year, resulting in a new figure of 0.75%.

 

This rate cut was designed to kick-start the Australian economy, which has been sluggish for some time now. Earlier this year, the Australian interest rate was reduced by 0.25% in both June and July.

 

The Facts Behind the Decision

 

This is now the first time in history that the figure has fallen below 1 percent.  The RBA's governor is Philip Lowe and he confirmed that this move was partly influenced by the falling interest rates seen in other parts of the world.

 

A small increase in unemployment figures was another factor behind it. It is also calculated that the unemployment rate could climb from its current figure of 5.3% up to 5.5%. This is due to expected job losses on the horizon, particularly in the construction industry.

 

In the housing market, prices in the main cities rose by 1.1% in September. However, the number of approvals for new houses to be built fell to the lowest amount since 2013. A 1.1% drop in approvals in August was an improvement on the 10% decline in July, though. Lower rates have helped the housing market in the last couple of months, which could give the building industry a much-needed boost.

 

Among the early reaction to this rate cut was a fall in the Australian dollar. It fell to its lowest amount in a month. Of course, falling rates and sluggish economies around the planet have also led to a tighter focus on issues relating to international debt collection.

 

What Does the Future Hold?

 

The Australian economy has expanded for 28 consecutive years without recession. However, the last year has seen the risk of recession increase. Economic growth has slowed, the property market is sluggish and unemployment rates have been creeping upwards.    

 

The RBA has made it clear that they will take further measures to boost the economy, if needed. However, the recent interest rate cut means that they have less room for manoeuvre in this respect. It may be that they look for less conventional ways to ease the monetary policy.

 

These alternative approaches could include negative interest rates, bond yield targeting or quantitative easing. They said that they will “continue to monitor developments” and are “prepared to ease monetary policy further if needed”.

 

In the financial futures markets, the prices now reflect a greater chance of a further cut this year. A 60% chance is being quoted for a reduction to 0.5% in November. This compares to a 30% possibility before the latest cut.

 

Among the hopes following the interest rate drop is that the labour market improves and wages grow, in order to boost domestic consumption figures. The Governor of the RBA said that it is now reasonable to expect “an extended period of low-interest rates”.

 

While there doesn’t yet appear to be any real risk of recession in Australia, there are some worrying signs that mean that more interest rate cuts will probably arrive before the year ends.