The Effects of the Interest Rate Rise
Within minutes of the Reserve Bank announcement that interest rates would rise we saw doom and gloom being proclaimed by spokesmen for the housing and retail sectors and their view seems quite valid. It’s hard to imagine that an increase in interest rates coming at the same time as big increases in the price of petrol won’t have a serious effect on the economy.
Of course, since Wednesday there hasn’t been the instant calamity that many might have expected - in fact our exchange rate has moved even higher and some might see that as a very positive sign.
In fact it’s quite the contrary - Australia basically lives on its exports from the mining and agricultural sectors. That’s what makes money for this country in the world market place and a higher dollar means less income from the sale of those goods.
It also has an effect on the tourism industry and tourists will not find Australia such an attractive destination while the dollar is up because it will cost them more to come here.
Of course the effect of the increased value of the dollar doesn’t happen overnight either. Instead, just like the effect of the interest rate rises on the housing and retail sectors, the effects are going to creep up on us.
That doesn’t mean that those effects aren’t going to have a real impact on us - because they are. The ordinary person in the street just won’t notice them for another month or two.
Fortunately, here in Queensland, the impact may not be as great as in other parts of Australia. You can find the State Government’s view of the coming financial situation here.
