Interest Rates Direction (Australia) Essay

Due to the present reduction in the financial market, its conditions and the ridiculously high petrol prices it has resulted in the slowing in domestic demand and thus preventing the Reserve Bank of Australia of lowering the currently high and raising interest rates.

In the immediate future I do not believe that the interest rates will increase much because of the reasonably steady trend in today’s market and as it continues to increase.

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In the graph (left) it is an overview of duration between 1990 and 2008. The Australian Cash Rate has remained steady between the years of 2004 and 2008, increasing slightly with incremental increases at the far right end of the chart. In comparison to the Japanese Target Call Rate and the US Federal Funds Target over the past 18 years the Australian cash rate has remained predominately higher than the Japanese target call rate and remained practically on par with the US Federal funds target rate, only exceeding it in the earlier years.

In regards to the above graph, between the years of 1990 and 1994 Australia was hit with the abrupt decrease of their cash rate. It fell from the monstrous 17% and higher to the nominal 5.00% and lower. The years to follow remained reasonably steady in regards to trends with minimal increases (only hitting approximately 7.5%) and only falling just below 5% in the year 2002. From then to the present the cash rate has remained progressive, and continued to increase.

The Japanese Target Call Rate has remained quite steady from about 1999 to the present. In comparison to the Australian Cash Rate and the US Federal Funds Target the Japanese Target Call Rate has remained quite nominal which is in favor of people who wish to borrow, but not in favor of those who wish to save.

In regards to the graph (right) we can clearly see that the target call rate has sometimes even dropped to 0%. During recent years the average trend has been just over 0%.

The US federal funds target rate has kept an overall trend realistic and constant with only some minor falls from approximately 8% to approximately 3% over the course of the 18 years.

During the years of 1990 and through to 1993 the US Federal Funds Target felt a drop in the rates. It stagnated for the duration of 1993 till 1994 then started to pick up again with a rapid increase until the peak of 6% during 1995. Nothing really significant happen for a while until just after 2001 when there was a dramatic fall reaching 0% in 2004. After the fall a slow upward trend happened and then followed by yet another downward fall in 2008.

The US Federal Funds Target Call Rate has varied quite sporadically over the years when compared to the other graphs. In comparison to the Australian Cash Rate and the Japanese Target Call Rate the US Federal Funds Target is quite small only ranging from just over 8% to fewer than 3%.

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