Impact of Interest Rates on Australian Economy

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Commerce Assignment
Rising and lowering of interest rates
Interest rates, also known as cash flow influences many aspects of the economy, this aspect of the economy controls the worth of a currency. The interest rate of the Australian economy is controlled by the RBA (Reserve Bank of Australia), all decisions that are made follow the monetary policy which is a set of objectives that encourage healthy, stable and steady growth of the Australian economy.
When interest rates drop, money becomes cheaper to borrow. This encourages consumers to spend more money during this period. Low interest rate can also affect the price of housing as assets would be something worth to invest in and due to demand over supply causing the prices of property to sky …show more content…

Interest rates can directly affect businesses as the increase of interest will discourage spending and more saving, whereas the decrease of interest will encourage more spending and less saving as money is cheaper to borrow.
Companies take advantage of this aspect of low interest rates to expand their business, hiring more people and generally paying higher salaries. The cost to of production will also become cheaper.
Low interest rates also impact lenders that are independent of the RBA, in times like these it usually means lenders have a lot of cash on hand and are anxious to lend it out forcing them to lower the interest rate. Low interest rates also encourage credit card users to pay back what they owe to the bank as it will save them money in the future.
Increasing interest rates will affect most businesses negatively, if businesses take loans prior to the increase of interest rates the business will most likely not be able to pay back and would have to cut back on their expenses. This would lead to high numbers of unemployment from businesses to recover.
High interest rates would also discourage the purchase of assets, businesses such as real estate would suffer as they rely on selling residential

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