Essentially the only game in town for the RBA is raising or cutting interest rates. Yes they can do other things but in reality they are minor.
Interest rates heavily affect the housing sector as it is very sensitive to interest rate changes. borrowers have less money to spend when interest rates are raised. We should also remember this affects business investment as well. Overall consumers will spend less as they realise the central bank is tightening policy.
I have to emphasis it is guesswork not science on whether a recession turns up or not. If Banks have been lax in their lending guidelines and/or the central bank is behind the curve. It is more likely a recession will occur.
In the former the housing sector takes a whack and thus reducing interest rates after this occurs does not do much. In the latter the central bank will probably raise rates quicker and more than otherwise. By the time they realise they have gone too far we are in recession.
Therefore hang on
No comments:
Post a Comment