Question

Why has the RBA decreased the Official Cash Rate twice in March 2020? Has this lowest ever rate, 0.25%, brought the desired results in the economy? Discuss. SHORT ANSWER QUESTION 200 WORDS PLUS

Answer 1

RBA has decreased the cash rate which is the interest charge the central bank charges on overnight loans between other banks. This is done as an attempt to revamp the economic activity and businesses that was significantly affected due to Covid crisis. Due to the crisis the economic activity came to a stand still in many countries and inorder to boost the economy, the rates have been decreased.

By decreasing rate the government is expecting more cashflows in the economy through lending and loans which can increase or support struggling business and reduce the unemployments. This is done as a part of monetary policy which includes quantitative easing also.

By comparing with the current economy, share market and unemployment rate we can see that slashing of cash rate have not seriously impacted the economy in its recovery. The unemployment has risen from 5.3% in april to 7.1% in June which shows that there has not been any reversal effect due to the slashing of interest rate. However we should understand that if these actions were not taken the fall of economy can be much larger than it is currenlty.