http://www.bloomberg.com/apps/news?pid=20601080&sid=aJlTmyIGLPBc
Summary
In October, Australia has become the first G20 Nations who increased interest rate by 0.25 percent. Australian central bank governor Glenn Stevens is expected to add extra quarter percent of interest rate in November, said by analysts. According to Statistic issued in October, the unemployment rate of Australia has reduced for the first time this year to 5.7% signalling a recovery from economic recession. In addition, the Australian currency reaches its 14 month high which indicates investors' optimistic forecast of Australia's future. In 2009, Australia has out-performed most of the G20 nations by gaining 1% of expansion as world's demand for natural resources continue increase in the past year. Strong stastics are the significant evidence of Australian’s recovery.
Connection
The adjustment of interest rate is a perfect example of supply and demand law. As the central bank raises the interest rate, there will be a greater demand for Australian dollars because potential investors are expecting a better future for Australia. In addition, Australia is more of an import than an exports country. An increase in interest rate costs Australia more in exports, but benefit Australian imports by raising the purchasing power of Australian dollars. However, because of an increase in interest rate, credit acquisition for Australian businesses will be harder because of the greater interest expense; as a result, there is less demand for extra credit.
Reflection
Australian central banks decided to raise the interest rate in order to slow the economic activities. In my opinions, the Australian central banks had made the right choice of raising interest rate because excessive lending will result a “w” recovery path for their economy. A low interest rate stimulates people’s demand for extra credit. If line of credit is not constrained, people will start lending more than they can pay off. Once the cycle is started, people will lend more to pay of f their previous loan. The fear of losing will cause a panic in the market and another wave of credit collapse will devastate the country. Should Australian central raise its interest rate more given the fact that it is still comparably low to the regular standard?
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I think that it is a good opportunity for Australia to build on their economy. Also, now we know that if we need a job, a good place to go would be Australia. The increase in natural gas may not be the mainly caused by the activities. I think it might be because of the up coming weather, although Australia's seasons are opposite from ours. Other parts of the world need natural gas, and I think Australia can use this chance to raise up the demand. Natural gas prices have gone high lately, and will continue to rise.
ReplyDelete-Michael Li
Interest rates are controlled by the demand and supply needs in the market. Interest rates also reflect how the economy is doing. The increase in employment rate and demand for natural resources are reflecting economy's recovery in Australia. Even though there is an increase in interest rates, people like consumers, are still cautious about the economy. There are researches that showed the confidence from consumer buying a house is the lowest level right now in Australia, since Nov. 2008. I think people are optimistic about the future but they are still feeling constrained with their own finances from the unexpected increase interest rates.
ReplyDeleteVanessa Lo
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ReplyDeleteIt seems like Australia is increasing the interest rate to prevent inflation but on the other hand, their currency is increasing. This causes people to invest in Australia using Australian dollars. The demand for Australian dollars would increase and the supply would also increase. It is weird because this doesn't help slow down their economy. Increasing interest rate would cause decrease in demand of people asking to borrow money from banks and when they have less money, the economy would slow down, preventing inflation. It seems to me that the increase interest rate and increase Australia's currency are contradictive to each other.
Vanessa Lo
Economics
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