Published on 11/05/2015 by Punchmedia

Fallen Interest Rates – 6 Questions from the Australian Public

The RBA (Reserve Bank of Australia) announced it was officially cutting interest rate to a historic low of 2.00%. This announcement was made one week ago and in the last week we have heard a flurry of questions in regards to the broadcast. Now that things have quietened down a bit, we have attempted to answer these questions in the form of an article so that both individuals and those who are looking to own a business can have a greater understanding of financials and the market.

1. Why the Drop in Interests Rates?

The 25 basis point drop down to 2.00% was, as RBA Governor Glenn Stevens put it, due to an 'expanding global economy but declining commodity prices'. Below-trend growth and falling terms of trade were also factors in the decision. Generally speaking, the RBA will lower interest rates in order to stimulate growth.

2. What Is the RBA Saying?

The RBA blames two key factors for the weak Australian economy and the resultant drop in interest rates.

1. Sluggish business demand as a result of the end of the mining boom
2. Lack of public spending by governments

The RBA also acknowledged “improved trends in household demand over the past six months and stronger growth in employment".

3. Who Opposes the Cut?

• Self funded retirees

Self-funded retirees relying on interest from bank deposits may feel the pinch from this recent drop in rates.

4. Who Welcomes the Cut?

• Australians with home loans
• Australians with personal loans
• Australians with credit card loans
• Australians with mortgages
• Businesses, particularly small businesses

Australian's owe the banks around $2 trillion in loans.

5. What Are Advantages for Businesses?

Low interest rates combined with low inflation could stimulate not only housing markets (outside of Sydney) but also business investment.

Treasurer Joe Hockey said, “it's a terrific budget. It is focused on jobs, growth, and opportunity". Mr Hockey has urged both households and businesses to take action following the interest rate cut and “borrow and invest", declaring Australian's too “go out and invest and create more jobs".

It is lower interest rates that should help drive down the value of the dollar. Industries including: tourism, manufacturing, agriculture, and higher education should receive a much-needed boost.

6. How Can I Make the Most of the Rate Cuts?

Many have exclaimed the decision would hopefully reignite business investment, as a lower dollar is important to jolt businesses into investing and hiring.

Mr Hockey has said that the federal budget will include a small business package that will work with businesses to drive growth. Have you been considering investing in buying a business? Is this perhaps the kick-starter you needed to get business buying underway? Contact the team at AnyBusiness here to discuss buying a business or take a look at our article on 6 Things to Consider Prior to Purchasing a Business - 6 things to consider when buying a business for sale.

punchmedia

Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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