Question

Why might interest rate cuts of March 2020 not have the desired effect on the Australian economy?(the answer is expected to be around 200 words.)

Answer 1

The Australian Reserve Bank cut the interest rate in March 2020 due to the effect of corona outbreak. This was based on the expected full employment and the inflation target. The uncertainty during this period will affect the domestic spending. Traders expect that the official cash rate will drop to .25 percent by July. The interest rate cutting will make bonus to the home owners with mortgages and also help the investors. There is both demand and supply shocks created in the economy. Due to corona outbreak the demand for goods falls down. Because people are worried about their loss of job.
The cut in demand will not help to match up with the demand shock. The supply shock in business affected very worst. There are several workers admitted in the hospitals due to some symptoms and also some of them were quarantines. The demand boost through cut in interest rate will not help the business man to open the production. There is a payment delay occurred among the workers. Without appropriate capital and money, the investors cannot invest in this low interest rate. This affects both demand and supply in its manner.