Date: 2016-08-12

Historic Interest Rate Cut by the RBA

Nikki Nordberg
Australia's central bank recently cut interest rates from 1.75% to 1.5%, a direct consequence of the country's faltering job market and record-low inflation. The Reserve Bank of Australia hopes to boost the labor market as well as induce economic growth via this interest rate cut. After a decade-long mining boom, the Australian economy gradually shifted towards less commodity-dependant growth, helping the nation avoid a recession. Unfortunately, there are many indicators that Australia's gross domestic product (GDP) is losing momentum. Economic growth of 1.1% in the first quarter of 2016 has been largely attributed to the dominance of net exports. Analysts suspect such exports to contribute minutely to overall economic growth. Data from the Australian Bureau of Statistics reported the country’s trade deficit rose to $3.2 billion ($2.4 billion) in June, while exports declined 1%, and imports increased 2%.
The current transition of the economic sector prompts questions regarding the country's macroscopic transition and well-being. Andrew Ticehurst, a rate strategist at Nomura Australia, told CNBC “We are making a transition, but it’s not a transition to a booming economy, with high paying full time jobs. So there’s a reason for caution here”. Australia has seen a decline in new jobs, with roughly 7,000 new positions each month in 2016 compared to over 30,000 per month towards the end of last year. Declining interest rates and a lack of new job opportunities have drastically impacted the Australian economy; the Australian dollar has fallen a half cent, resulting in a substantial spike in local currency. This spike in local currency has hurt many service-export industries including tourism and education.
Australia will continue facing complications as its mining-concentrated economy adjusts to more diverse sectors. Consequently, Paul Dales, chief economist at Capital Economics, told the Wall Street Journal "The RBA could be prepared to lower interest rates even further". ( Vivian )05 Aug,2016

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