ABC News Daily
Is a Christmas rate cut on the cards?
Sep 25, 2024
Ian Verrender, ABC's Chief Business Correspondent, dives into the intricacies of the Australian economy. He discusses the recent dip in inflation and its implications for potential interest rate cuts, possibly before Christmas. Verrender highlights the Phillips Curve theory, exploring the tense relationship between unemployment and inflation. He using the analogy of adjusting a shower's temperature to explain the delayed effects of interest rate changes. His insights shine a light on the delicate balance central banks must maintain in today’s fluctuating economy.
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Quick takeaways
- The Reserve Bank of Australia may consider cutting interest rates before Christmas as inflation declines but must balance this with unemployment concerns.
- Economists suggest that a slight rise in unemployment could be necessary for rate cuts, highlighting the complex relationship between inflation and employment.
Deep dives
Global Trends in Interest Rates
Interest rates are declining across various countries as a response to anticipated economic slowdowns. Countries like the U.S., New Zealand, and Canada have adopted rate cuts to address potential downturns, indicating a proactive stance in monetary policy. However, Australia's Reserve Bank of Australia (RBA) has chose to maintain its current rates, emphasizing the need for sustained improvements in inflation before making any reductions. This cautious approach reflects a broader concern regarding the impact of delayed responses in monetary policy, akin to the metaphor of trying to adjust water temperature in a shower.
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