The Decision Of Reserve Bank Of Australia - 1595 Words

This essay investigates the possible decision of Reserve Bank of Australia (RBA) about cash rate to be made on 5 May 2015.The appropriated level of cash rate depends on the current economic conditions, both domestically and internationally. Also, it will be based on the three main objectives of monetary policy including price stability, full employment and the stability in economic growth. This essay will discuss the current economic conditions which are consistent to the tendency of cash rate that might be cut from 2.5 to 2 per cent in the next meeting. The essay provides three arguments for this possible decision including the decline in in business investment and business confidence, low commodity prices and the economic growth in major†¦show more content†¦Consequently, the business confidence is deteriorating based on the NAB’s business survey (NAB Group Economics, 2015). It appears that the weakness of economy is due to the lower mining sector’s contribut ion to economy and some non-mining sectors cause lead to the low level of business confidence. Also, Mulligan stated that despite RBA decided to keep the cash rate unchanged by 2.25 for 18 months to support the confidence of private and business sector, business confident â€Å"had slumped 3 index points to 0 in the last week of February† (Mulligan, 2015,para.2). This means that the further decline of cash rate is required to support the spending and investment of business sectors. Although mining investment and business confidence remain low, investment in dwelling represents a positive sign for the economy (RBA, 2015b). In addition, the forecast of National Bank of Australia on March (2015) expected that â€Å"dwelling investment [will increase] by 2.6 % within quarter 4 in 2016† and â€Å"much stronger growth of 12% and 7% over 2015 and 2016 respectively† (p.11). Regarding to the favorable trends of dwelling investment, it is believed that dwelling investment can be compensation to the decline in mining investment as the resource can be