This is Why Bad Times Are Not Over for Australian Economy – RBA Flags Key Issues

Reserve Bank of Australia

Australian Economy has already suffered a lot recently and it seems like there’s more in store for the economy. The Australian markets have witnessed a significant downtrend in the past week primarily because of the global sell-off in the equities. The heightened treasury yields significantly impacted the markets last week thus, leading to the outflows. Higher treasury yields also lead to the US dollar appreciation against other currencies. Needless to say, in these times, emerging economies struggle a lot. Not so long ago, the Australian treasurer stated that additional regulations should be avoided in the current scenario in regard to the lending space as this could restrict the growth prospects of the overall economy.

Amidst all these, we can’t afford to miss what’s happening in the technology sector. The tech sector in Australia witnessed negative momentum on October 15, 2018. In the last week, the US technology stocks also witnessed strong downtrend and the market players have used these stocks to hedge their losses which they were encountering because of global downturn. These losses were capped by taking short positions on tech stocks. 

However, the board members of Reserve Bank of Australia or RBA, Australia’s apex bank, are concerned that lending procedure might get further tightened amid the royal commission interim report. The further tightening of the lending could have a severe impact on the economic growth prospects of the country. However, one can’t ignore the issues which were addressed in the interim report.

The supply of credit needs to be looked after in order to ensure that the economic activity in the country is not suffered. A fall in the lending activities would mean lesser housing and business growth, thus lower economic activities which contribute to the broader growth. The impact of the interim report is expected to be felt on the credit as well as housing areas. Moreover, the report by the International Monetary Fund or IMF has further lowered the expectations from the Australian economy. According to the report, the economy is exposed to the risks which might further arise from the escalating trade tensions between the US and China.

Therefore, it can be said that the Australian economy is not expected to witness a rise in the interest rates for 1-2 years and thus, indicating that the economy has taken the road of quantitative easing or QE. That’s no surprise that RBA is maintaining QE because if they raise the rates, amid the trade war concerns as well as interim report, it would derail the economy from the growth path.

In the last meeting of RBA which was conducted on October 2, 2018, the apex bank believed that the present monetary policy conditions would help in boosting the economic growth. These conditions might also help to decrease the unemployment rate and could also control the inflation rate. However, the meeting between the US and China which would take place next month might relieve the concerns of the trade battle which is presently weighing over the investors’ sentiments.

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Bottomline, the Australian markets are encountering several macroeconomic level risks which could directly affect the growth of the economy.

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