For many people, news the Reserve Bank of Australia (RBA) has dropped interest rates to a record low of 1.25 per cent probably falls on deaf ears. This isn’t really surprising – the RBA is not a topic of conversation likely to pop up at the dinner table.
Despite this the Reserve Bank shapes our everyday lives. As the Australian dollar continues to deflate and the housing market falters, it is up to the RBA to juggle these pressures and keep things running smoothly.
To keep the Australian economy on an even keel the RBA uses the cash rate to stimulate change in the markets. Put simply a changing cash rate influences interest rates, lower interest rates encourages people to get loans and invest, this stimulates the economy, creates jobs and encourages spending.
Put together this process is known as the ‘transmission of monetary policy’.
Ultimately the cut to interest rates should shore up a housing market liable to collapse. While houses are therefore not likely to get much cheaper, purchasing them may be easier in the future.
