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Following 1 article, Australia will increase their interest rate only when US increase their interest rate (http://www.smh.com.au/business/markets/currencies/australian-dollar-on-track-to-dip-below-parity-with-new-zealand-20141223-12cxlj.html).

Aussie dollar keeps going down and this is not very good for importing business. Why doesn't the Reserve Bank of Australia increase the interest rate right now rather than just waiting for US to increase first.

What is the point?

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Good for exporting business though? –  Alecos Papadopoulos yesterday

1 Answer 1

Australia's cash rate is already quite low. There's no need at the moment for the RBA to drop the interest rate any more, and as you can see from past decisions it's been unchanged for a while. Some economists think the RBA will move up soon, but that's uncertain - I wouldn't say it too confidently anyway - the bank is meeting its inflation targets and appears to be maintaining stability. Some are predicting later in 2015 anyway.

With low rates already, the article is stating that the RBA is watching the Fed to see what it does. The Aussie dollar is going down, you're correct. And while this isn't good for importing businesses, businesses using overseas intermediatary goods or my eBay Christmas shopping, it will increase competitiveness for our exporting / manufacturing businesses and, in Glenn Steven's words, allows for 'more balanced growth' across the economy. Also mentioned is that the Australian dollar is higher than its fundamental value and the RBA wants it to go down even more.

If the Fed cuts their rates more then the RBA may need to act because there will be higher demand for Australian investment as a result of higher returns, resulting in currency appreciation, which the RBA doesn't want any more of.

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