I was actually shocked on Tuesday to hear that the RBA had dropped interest rates, the first time in 17 months, now down to a cash rate of 2.25%.
My initial reaction was WHY? WHY? WHY?
Don’t get me wrong, this is a decision based on millions of dollars of research, and will save Aussies billions of dollars over time.
Some key points to note:
1. “The Euro area and Japanese economies were both weaker than expected.”
2. “The price of oil in particular has fallen significantly over the past few months.”
If you have read some of my previous blogs you will have read about my thoughts of cheaper oil and thus cheaper petrol.
Generally interest rate drops are used to STIMULATE an economy, but the closer interest rates get to ZERO the effectiveness of this is questionable.
Just look at the USA, where interest rates (Fed) have been at 0.25% for over 4-5 years now, and you’d think (based on economics theory) this should skyrocket productivity…
But as with all things it is but one factor in the game of money.
It will definitely be interesting times ahead, with interest rate drops, falling oil prices, Greece and it’s tussle with the Euro…never a dull moment!!!
Til next time!