Episode 52: RBA interest rate cuts to combat underemployment rate

Reserve Bank of Australia

The Reserve Bank has cut interest rates for the first time in consecutive months, in 7 years. In the past two months we’ve gone from a rate at 1.5%, reduced to 1.25% last month, and further to 1% this past week. Some economists predict the rate could be cut even further later this year.

The key question is: why is the Reserve Bank making these cuts? When you take a look at stock market performance at the moment, and with unemployment at a low of 5.2%, it appears there isn’t a need for such drastic cuts. 

Well, the reality is, the Reserve Bank has two primary mandates. The first being price stability and maintaining inflation. The current inflation target is 2-3%, which means they don’t want general prices in the economy to rise by more than 3% per annum. The second mandate is maintaining employment rates. Though unemployment rates are low, the underemployment rate is sitting at 8.1%, mainly impacting those between the ages of 15-24. 

The plan behind cutting interest rates is to help stimulate demand, cost efficiencies in businesses, encourage investment and fuel growth; which will theoretically cause an increase in wages and openings for employment. Of course, interest rates are only one method of achieving these goals, so we are also seeing the federal government providing tax cuts and stimulating infrastructure planning, to create demand and reduce the underemployment rate.

Listen in now for more on our discussion on interest rate cuts on employment rates.

This Week’s Investor Exchange Round Table Covered:

  • Louis explains why debt is okay to have and how debt can be your friend. Of course, not all debt is helpful, like debt caused by living outside of your means. If you are saving money and spending less than you earn, debt can help you get the credit you need to acquire assets, like a home, before you are able afford to buy outright. (22:12)
  • Listen in for Louis’ tip on making super contributions instead of putting extra savings into your home loan in order to get a higher return on your investment. (29:00)
  • Brett discusses property spruikers taking advantage of the improvements in the property market. Listen in for tips on how to identify a property spruiker and how to assess a property opportunity when you’re dealing with a spruiker. (35:20)

You Cannot Be Serious:

A man was sunbathing in his garden in London when a frozen body landed just a few feet from him. Unfortunately, a man who stowed away on a Kenya Airways flight fell off the plane as it approached Heathrow airport. 

A millionaire in Britain is offering £5000 to someone who will go to music festivals with him to give him a genuine music festival experience. Kind of like a music festival concierge! The employee will need to be experienced in music festivals, will need to help him set up a tent, and must be able to get him backstage!

The Fine Art Bartending school in Vancouver, Canada, was burglarised. The thieves stole computers and coloured liquid that was clearly labelled as not being alcohol! That must have been a disappointment!

Listener Questions:

Write in to get your investment and wealth management questions answered by Joel, Brett and Louis.

Ask a Question: https://theinvestorexchange.com.au/ask/

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The post Episode 52: RBA interest rate cuts to combat underemployment rate appeared first on The Investor Exchange.

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