On the 3 February 2009, Reserve Bank of Australia board has decided to cut the cash rate by 100 basis points, to 3.25 per cent in a bid to cushion a flagging economy. The significant deterioration of the global economic conditions has affected household and business confidence and has a major impact to the financial institution with results in a sharp economic contraction in the December quarter that followed the Lehman Brothers collapse. There is also a sign of declining in the global inflation since the middle of 2008 and it is likely to decline further.
China is also showing sign of economic slowdown even though the Chinese economy is still growing but it has contracted since the boom period. This reduces Chinese commodity consumption which indirectly affects Australian economy because Australia exports commodities to China. This rate cut will also lower the cost of funds and over time it will increases the household expenditure and businesses investment. It will be very likely that housing affordability is expected to improve due to the massive rate cut by the RBA. This also meant that mortgage repayment will be lower and gives the consumer more spending power on other goods and services. With the RBA cutting the cash rate, it will help to cushion the Australian economy from the contractionary effects that are coming from overseas economy.
The All Ordinary ended up 0.16% higher after the government announced the fiscal stimulus package and the RBA cut interest rate by100 basis points. At the end, the market closes higher because it was pushed up by the financial stocks which received the news positives.
No comments:
Post a Comment