Powered by MOMENTUM MEDIA
Powered by MOMENTUM MEDIA
subscribe to our newsletter
Record-low rates not stimulating spending

Record-low rates not stimulating spending

Slow business investment and a relatively solid dollar have weakened the effects of low interest rates, according to a new report by a global research firm.

IBISWorld said the record-low cash rates since August 2013 have not provided any substantial stimulus for economic growth and, as a result, the power of monetary policy has diminished.

“This has been a driving factor behind the Reserve Bank’s decision to further ease monetary policy over the past three months, leading to an all-time low cash rate of two per cent,” the report said.

Advertisement
Advertisement

“The effects of lower interest rates generally flow on to the wider economy in a variety of ways, such as through changes in credit supply, exchange rates and savings and spending behaviour.”

In spite of this, the report said lowering the cash rate further has failed to have any significant impact on consumer and business spending, and has instead added to the inflation of asset prices, particularly in the housing market.

“Despite recent improvements in household demand and some unexpected employment growth, business capital expenditure is still lagging behind the economy as a whole, even after removing the effects of declining mining investment over the past two years,” the report said.

“While a lower interest rate has fuelled housing lending, it has not had the same effect on business lending.

“Non-mining capital expenditure by the private sector peaked in 2012 and has yet to return to the same heights, even after multiple subsequent declines in the cash rate.”

The report noted confidence from board members and small business owners will be needed to kick-start business spending.

“Ideally, more businesses would [need to] take advantage of the lower interest rates for expansion, driving growth in other areas of the economy to balance out the surge in house prices,” it said.

“However, more sustained household demand will be required before any substantial upturn in business lending and investment becomes apparent.”

Record-low rates not stimulating spending
mortgagebusiness

 

Latest News

An increasing number of Australians are tied to a mortgage, despite a fall in the home ownership rate, new ABS data has revealed. ...

The Commonwealth Bank of Australia has agreed to provide $150 million of debt funding to Queensland Airports Ltd, with $75 million committed...

The National Housing Finance and Investment Corporation has provided two loans to social and affordable housing providers, including its fir...

FROM THE WEB
podcast

LATEST PODCAST: A shift in serviceability requirements

Do you think the banking royal commission recommendations could negatively impact competition in the mortgage market?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.