In the United States and in many other parts of the developed world, interest rates are controlled by the Reserve Bank of Australia. The bank controls interest rates because it influences the level of money supply, which, in turn, influences the exchange rate between currencies. In australia, the Reserve Bank influences interest rates through the intervention it makes into the market. In a report released in June 2021, the Reserve Bank of Australia (RBA) revealed that interest rates on Australian residential mortgage loans had recently dropped to their lowest level in over two decades. While it can be said that interest rates on residential mortgages have dropped by around two percent since the end of the recession in August 2021, this fall was only a mild depression, as compared to the two percent fall in the national stock market in just one year.
To some degree, the Reserve Bank of Australia (RBA), which is the central bank of Australia, has also followed a similar strategy with its decision to cut the official interest rate. After all, as in the United States, where interest rates are frequently adjusted to counteract the effects of high inflation, the Reserve Bank of Australia has tried to keep its interest rates low by maintaining the refinancing rates for borrowers of bank loans at about two percent above the prevailing mortgage rates. However, in a similar vein, in September 2021, the Reserve Bank of New Zealand (RBNZ) reduced the official rate to four percent. And in July 2021, the Central bank of Canada (CPEC) lowered the official interest rate to six percent.
At the same time, the Reserve Bank of Australia has sought to dampen the impact of high interest rates by maintaining a loose monetary stance. This has been done by reducing the official rate, which in effect is a nominal interest rate, to a level that is less than the effective market interest rate. This level is also called the base rate. While this is meant to provide cushion to the banks in the face of fluctuations in wholesale and other financial rates, it has not resulted in significant reduction in wholesale prices. It is believed that the Reserve Bank of Australia has chosen a very wrong approach to fight inflation.Wayne Saman