With Australia’s unemployment rate remaining at 5.2%, even though jobs growth was solid, one can expect the RBA to continue to look at the state of the economy and the need to stimulate it. The participation rate rose confirming that a lot of slack remains in the labour market which means wages growth should remain subdued for the time being. With this the RBA minutes revealed they will “continue to monitor developments in the labour market closely and adjust monetary policy if needed”. What this means that the chances of another rate cut could be on the cards.
Obviously the Federal Government is comfortable with the current economic situation otherwise they would be injecting more stimulus into the economy. Either that or they have run out of ideas. Either way we can’t expect to see any action by this government or reaction to what the RBA is saying. What that means is that all that we can expect is that any response to economic decline will need to come from the RBA, and all the RBA can really do is reduce interest rates.
Should the RBA chose to reduce interest rates there will be a number of effect. These effects are as per below:
- We can expect the AUD to fall against the USD. This is what has been happening ever since the RBA first started to drop interest rates. Also the rise in the Fed Reserve Rate in the US has further exacerbated the effect. Obviously when the AUD falls it leads to imported inflation as a large portion of what Aussies consume is imported. The same can be said for gym mats which are an imported product. Gym mats are everything from:
- Jigsaw Mats
- EVA mats
- Tatami Mats
- MMA Mats
- Yoga Mats
2. It would be hoped that a fall in interest rate will stimulate the economy. When consumers have access to cheap credit it is hoped that they will borrow money and purchase things such as cars and other items. This then is meant to lead to inflation which is necessary to help the economy. One would expect that this inflationary effect would also touch products such as gym mats and thereby causing their price to rise.
3. Business expansion is the final frontier of rising interest rate. As well as encouraging consumers to consume more products such as gym mats, it is hoped that increase consumption and cheap credit will also encouraged businesses to invest more. This investment is meant to spur employment as companies general require more equipment and workers when they expand. So for example if an MMA club decides to setup a new school due to more demand for their services than they will require gym mats such as MMA mats and jigsaw mats for their premises.
So you see the effects of a rise in interest rates are immediate. How effective they are in the long term remains to be seen. Whether they can be effective without reciprocal government stimulus is also another question.