low interest rates

What is quantitative easing?

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When conventional methods of increasing economic growth has not worked, then central banks may resort to quantitative easing. It is a method of encouraging economic growth by increasing the money supply. Definition Central banks increase the supply of money by buying bonds from banks. To raise money to purchase these bonds they print money. When banks sell bonds to the central bank, they increase cash reserves and this should encourage them to lend out money to businesses and individuals. The …

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Reasons why the stock market is going up despite slow growth

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Why is the stock market is going up despite slow growth? Share markets at the moment do not seem to make any sense to the average investor. The S&P/ASX 200 has almost hit its highest point since 2007 yet economic growth has been subdued for a while. So why has the stock market been so bullish when the economy has been weak? 1. Low interest rates Investors are looking for asset classes which generate high returns. Low interest rates mean …

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Strategies to stimulate the economy

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When growth and inflation are at low levels, central banks and governments can use various methods to stimulate the economy to increase inflation, increase spending, and increase employment. Here are some of the strategies that can be undertaken to achieve economy growth. Lowering Interest Rates When the central bank lowers the interest rate, it wants to change the behaviour of borrowers and lenders by making loans cheaper for individuals and businesses. The Reserve Banks of Australia (RBA) has the goal …

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How low interest rates affects the different sectors

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Australia’s official cash rate is now the lowest in history. In this article we discuss how low interest rates affect each sector of the Australian Stock Exchange. Consumer discretionary Low interests are a negative sign for consumer discretionary as it means that the growth of the economy is slow. Consumers become selective about what they purchase and will deter spending on non-essential items. Consumer discretionary stocks suffer in low interest rate environments as individuals do not want to spend money …

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The 6 dangers of low interest rates

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We have had low interest rates in Australia for a few years now and the RBA has just announced another cut of 0.25%. This makes the official cash rate the lowest in history at 1.25%. Rates are lowered when regulators see a need for the economy to be stimulated. Lower interest rates are good for the share markets as companies can expand by cheaper borrowing. However, it can also lead to some negative repercussions. These are the 6 dangers of …

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