Quick Guide to Interest Rates
Interest rates are talked about almost as much as the weather, particularly when they are on the rise. While no one likes to see interest rates rise - especially those who have a home loan (unless you have lots of money in a savings account - it so happens that hikes in interest rates slows the economy down so that it has stable growth rather than escalating out of control and then falling in the same manner. The Reserve Bank of Australia (RBA) is responsible for raising and lowering interest rates, but their decision to do so is based on many, varied factors. And they don't just sit at fancy desks with their feet up, but meet 11 times a year to study the situation.
Their decision to raise or lower interest rates is based on such information as consumer confidence, retail sales, the price of bank to bank credit internationally, and how the Australian dollar is performing, amongst many others like amount of money deposited by people into accounts including term deposits. One of the problems the RBA has is that it very often takes several months before their actions filter down into the economy. For instance, a rise in rates may not have the desired effect of slowing the economy for some months. In that time things could get out of hand, so that is why interest rates are raised by small amounts and quickly, rather than by a large amount and only once.