Loanable Funds Market in Australia

Determining the cash rate by the Reserve Bank of Australia establishes a number of different factors for the Australian economy. The RBA is responsible for controlling monetary policy and ensuring that Australia’s financial system is stable. In light of recent events that have impacted economic growth, the RBA has maintained a 2.0% cash rate, which affects the overnight rate for loans to commercial banks. Previously held at 2.25%, a decrease by 25 basis points brought down the cash rate to 2.0%, an all time low in the past decade. The RBA held an expansionary stance to promote investment and spending in the local economy in order to drive growth. It is recommended that the RBA maintain the current cash rate of 2.0% in light of consumer confidence

Primarily, you must understand that lowering the rate of interest will make it cheaper for people to borrow as well as make it cheaper to pay back existing loans. As a result, firms may use this money that they have saved to spend on upgrading the

It is said that we are living in turbulent times. The Australia’s once-in-a-century commodity boom has reversed, leading many miners to cut back on investments and consolidate; which is expected to generate great social and economic hardship throughout these years. While more hope is casted into the construction sector, a cooling change blows in the housing market. Unemployment is tipped to rise and when it reaches a record high; consumption will continue to grow at a below-average pace, so business sentiment will remain fragile. Rather than fuelling the economy, the fiscal policy keeps straining it whilst the monetary policy will struggle to have an impact – indicating that the Australian economy is slipping downwards.

-The cost of borrowing is increasing, and that’s leading some new-home buyers to speed up their purchases, while discouraging homeowners from refinancing existing mortgages.

This report will detail the state of the Australia economy using key economic indicators, and provide an analysis and pinpoint any economic problems. Using this information it will further provide recommendations how to apply the monetary policy in the short and medium term to help the Australian government achieve its main economic objectives. Finally it will state the effects of these recommendations using three outlined economic criteria.

The federal fund rate is the essential tool that the Federal Open Market Committee uses to impact interest rates and the economy. Changes in the federal assets rate have broad impacts by affecting the acquiring expense of banks in the overnight loaning business sector, and in this way the profits offered on bank deposit items, for example, declarations of deposit, investment accounts and currency business sector accounts. Changes in the federal assets rate and the markdown rate additionally manage changes in The Wall Street Journal prime rate, which is of interest to borrowers. The prime rate is the basic record for most Visas, home value advances and credit extensions, automobile advances, and individual advances. Numerous little business

“The regulator has imposed higher mortgage capital risk rates, leading to out of cycle rate hikes [from the banks].” This has made it more expensive for property investors to find a mortgage, which has contributed to the cooling in the market.

Money supply had also stimulated the development of private financial institutions that were eager to give high-risk loans. During the first two years the loan rate was fixed, but increased significantly in

This distinction between debt securities prices and interest rates – on which more will be said below – is supported by the fact that the actual markets where their joint values are determined are explicitly debt securities markets. Bond markets – primary as well as secondary – and commercial paper markets quote either the prices or discount rates of their debt securities, and leave the corresponding interest rate to be inferred. The “interest rate” is a pricing term generally spoken outside of the larger financial markets by retail borrowers and lenders such as local banks.3 In addition to the great familiarity with interest rates by those who borrow or lend through banks, most economists dependably refer to interest rates instead of debt securities’ prices because it is assumed that economic agents think in terms of interest

The bank’s core business, which is to channel funds from savers to investors by borrowing and lending, will be driven by the market risk factors. As we briefly examine the changes in interest rates; If CCB borrows funds at high interest rates and issue these funds as loans at low interest rates, due to changes in the market interest rates, a negative return on the portfolio would be expected as the bank would be paying higher interest on the funds borrowed than it would be receiving on loans

The Central Bank increases the lending rate and it is difficult for commercial banks to borrow money from the Central Bank. So, the commercial banks increase the rate of money lending to their customers. This change affects the customers by an increase in the loan amount and also credit card interest. Ultimately, less disposable income is left with the customers to spend off or invest in the businesses, affecting the businesses' revenues and profits. The increased interest rate can also cause effect by causing the firm to bankrupt and the linking banks and financial institutions will restrain to give any further loan and their capital will also be stuck

The Speech entitled ‘Developments in Secured Issuance and RBA Reporting Initiatives’ executed by Chris Aylmer in November 2013 focuses on the progression of covered bonds over the past two years and how it has ‘proven to be a useful source of funding for Australian banks’ (Aylmer, 2013). Its role as a source of bank funding centers on diversifying the investor base and extending the tenor of their issuance. The RBA concludes that through the issuance of covered bonds, banks are able to access funding which is less sensitive to risk in the global market, in comparison to unsecured forms of funding. (Aylmer, 2013)

More money is then borrowed as people take advantage of this, which has the effect of boosting the mortgage market as well.

In addition to the lower interest rates that have been changed by the Reserve Bank to Australia, loans are easier to obtain.

Increased interest-rate is one of the most valuable features of these loans and this is how the lenders make higher profits by catering these loans to the needy borrowers. Those fellows who cannot bear this