How Does Inflation Affect Australian Banks

This report will show an overview of the current state of the Australian economy and its management by the Federal government through examining economic indicators such as economic growth (GDP), unemployment, inflation and trade.

The figure obviously had not return to pre-crisis level. Moreover, recent commodity prices had fallen significantly which will affect Australia’s short and long term economy.

Unemployment: As can be seen in Fig 3 below, the unemployment rate in Australia has recently dropped below 5.8%, which is the lowest it has been for over 20 months. This is despite the economy struggling over the previous 12 months due to a fall in investment in the mining industry. This has led to the Reserve Bank of Australia (RBA) reducing interest rates on two occasions in the past 12 months to encourage the non-mining sectors of the economy to fill this void and invest in resources, but some businesses are still reluctant to spend money. NAB economist Tapas Strickland said he expected strong jobs growth to continue into 2016, stating “ The forward indicators, such as jobs ads, suggest employment growth of 2% a year, and when you do the calculations, that implies 20,000 (jobs added) per month”. (Guardian, 2015).

The benchmark investment rate in Australia was last recorded at 2.25%. Investment Rate in Australia found the middle value of 5.13 percent from 1990 until 2015, arriving at an unequaled high of 17.50 percent in January of 1990. Inflation Rate in Australia averaged 5.21 percent from 1951 until 2014. Customer costs in Australia rose 1.7% during the time to the December quarter 2014, the slowest yearly pace in more than two years as petrol costs dove. Australian yearly inflation rate abated to 2.3% in the second from last quarter of 2014 from 3.0 % in the past period, determined by a fall in cost of electricity, after the removal of tax duty on carbon discharge beginning early July. An alternate key variable that impacts the business is the unemployment rate. While the unemployment is staying high it is normal that RBA will keep the investment rates and trade rates low. Unemployment Rate in Australia diminished to 6.30% in February of 2015 from 6.40% in January of 2015. Unemployment Rate in Australia found to be in between 6.91% from 1978 until

Booms, busts, recessions, and growth; all of the preceding terms are characteristics of a typical market economy. There are times when an economy can flourish spectacularly and there are times when it can fail miserably. Consequently, it is the responsibility of a nation’s central bank to manage these fluctuations through conducting effective monetary policy. The following paper will assume the perspective of the Reserve Bank of Australia (RBA) and critically analyze the past, present, and future of the Australian economy while considering specific sectors.

Australia was thriving with an annual GDP growth rate averaging 3.01% until late 2008 to 2009 which plummeted to 1.73%4. They suffered the same fate as rest of the world, somewhat more insulated, with the impact of the Global financial crisis (GFC) after announcement of the collapse of Lehman Brothers. The clear evident impact of the financial crisis on most Australian households was the large decline in equity prices which had fallen by about 50% and dropped further in early 20095. Business and consumer confidence fell as a result of reduced wealth of Australian households. The same was observed in external demand i.e. demand for Australia’s

Introduction: What factors affect the demand and supply of Australian dollars in the foreign exchange markets? Distinguish between the possible causes and effects of currency depreciation and a currency appreciation on the Australian economy. What forces have come into play, if any, in the past four months that have affected the value of the Australian dollar?

GDP growth, unemployment figures, inflation rates and money aggregate figures are important interrelated indicators that can help to determine the health of the Australian economy. The patterns evident in these indicators represent practical expressions of economic health and can be seen as the result of action taken by the Reserve Bank to achieve the three key objectives:

Also, Australia’s and China’s Foreign Direct (FDI) and Gross Domestic Product (GDP) growth saw huge declines during the Global Financial Crisis (GFC). Both economies, being highly export driven, especially China saw GDP declines from 2007 to 2008. Australia declined by 1.9% and China by 4.6%. Both economies also experienced a huge fall in FDI—Australia’s FDI declining 24% from the previous year and China’s declining 36%. The huge economic decline and lack of confidence in both economies raised the unemployment rate in Australia from 4.6% to 5.4% and 4% to 4.3% in China.

The main issue in the article is the decline of the Australian dollar against the US dollar. Upon perusing it is understood that the Australian dollar is steadily declining during the current year. The economists said that this is due to the fall of commodity prices globally. The Australia is agriculture and resource based economy, and the Australian dollar heavily depends on commodity price and terms of trade. According to the IMF the reason for the falling commodity prices is the slowing of demand globally. It’s mentioned that Australia, Canada and New Zealand are the three of the worst performing currencies of 2015. In order to stimulate economy the Reserve Bank of Australia is planning to cut its rate to 1.5% before March 2016 to deal with lower GDP and low domestic demand that is increasing unemployment. Mining investment has slowed down, which reduced the value of iron ore, causing Capital imports to fall in Australia. If the dollar declines too far, then Australia’s import will be reduced and this is difficult for businesses. Another nail in the coffin for the Australian economy is the plan to raise the rates of UK and US which could further decline the value of AUD.

We observe appreciation within the Australian rate of exchange once an increase in commodity prices occurs and an improvement in Australia's terms of trade. In 2008, we observed commodity value indexes collapse, leading in successively to sharp decreases within the Australian dollar. As commodity costs have surged once more, this has caused farther appreciation of the Australian dollar. Lower inflation in Australia is another catalyst for appreciation of the currency. Over the years, an accrued demand for Australia's exported product and services has been indicative of Appreciation. As a significant exporter of natural products, Australia's terms of trade and future (long term) export performance are powerfully influenced by the costs of these products. With these costs currently over thrice their value held at the beginning of the resources boom in 2003, this has provoked speculative investment within the Australian dollar. When there are expectations prevalent, that the currency will appreciate based on speculation of the other changes in the domestic and global economy, we are sure to see this causing an actual appreciation in the Australian currency. Additionally Depreciation can be a consequence of a decrease in Australian interest rates or increase in overseas interest rates. Depreciation will occur when there is deterioration in investment opportunities in Australia or

It is said that the Australian economy was picking up in the March quarter in 2015, although the growth rate of the economy is still below the average over the past year. And there were some early indications that the strength of growing in the June quarter was not as strong as in the March quarter (Rba.gov.au 2015). Different kinds of macroeconomic indicators construct a picture of current macroeconomic conditions in Australia. There are a great number of macroeconomic indicators, three of the most important indicators will be focused as following, such as gross domestic product, consumer price index and labor force.

In every country, they always have a chance to have a financial crisis, it depends on the government and banks, which means Australia might go to have a financial crisis in the further year. Banks can reduce the likelihood of having a financial crisis in countries. Many possible ways to have a financial crisis and 2008 is a big international crisis. Australia financial system helped the government to reduce the damage from the 2008 international crisis, many countries except Australia have a serious problem and impact after the crisis. Australia financial crisis can cause by banking and houses, it can avoid one crisis, but may not evade the second, so they should find a solution to avoid the crisis come.

Over the course of a year, if the value of the Australian Dollar were to decrease 10%, the Australian inflation rate were to increase 5%, the price of oil was to increase to $100 per barrel and the Australian unemployment rate were to jump to 10%, I would predict people would start jumping out of windows. The suicide rate would skyrocket and there would probably be a political upheaval some sorts. Maybe these are overstatements but who knows, maybe they are understatements.

The Australian banking industry resembles an oligopoly with a few players playing a key part. This is evident from the share of top 5 banks in total housing loans standing at almost 73%, and it has risen over time from 60%. This shows that loans are more concentrated with top 5 banks now.