Reserve Bank of Australia (RBA) can be described as a major player in deciding the health of the Australian economy through setting the cash rate with the effect on the interest rates offered in the commercial banks. Lower cash rate implies lower interest rates on borrowings which is beneficial to all economic players especially the business owners and customers. This can spur the economic activity as the business owners are encouraged to venture more and even create more employment opportunities. On the other hand, higher cash rates increase the cost of borrowing to reduce inflation; it looks to reduce spending by the consumers and capital expenditure by the business.
The RBA’s action of maintaining the interest rates at 4.35% is a sign that one needs to be very conservative. It is evaluating past rate increases to check the impact that has been made in reign in inflationary pressures. Meanwhile, looking at the employment data from the Australian Bureau of Statistics, as of May 2024, the unemployment rate increased to 4%, while the participation rate remained steady at 66.7%. The employment to population ration remained at 64.1%. And underemployment rate remained at 6.7%.
They are also targeting to balance on the inflation factor and on the economic growth aspect as well. Also, the uncertainty in the global economy could also explain the RBA’s positioning; the geopolitical tensions and recessions in powerful economies.
On this stand, the public should understand that the selections made by the RBA board may not necessarily be unison. In this case, there will be dissidents recommending higher rate to tackle inflationary consequences more effectively. The majority votes to keep the rates. The minority might have wanted a higher rate to tackle inflationary influences much more.
The RBA recognises inflation, but by holding the rates, this could portray a strategic waiting which may lead to inflation pathing. This could then worsen into a worse situation in the future, meaning that the future rate increases could slow the economy and employment even more than in this case. Thus, high inflation together with low wages often becomes a vicious circle. When the price level increases, employees could call for salary increases to afford the same level of goods and services. Firms have higher costs themselves, and thus, price increases can follow and push up the rate of inflation, again. This is where more forceful rate hike can offer positive result by quelling the inflation numbers early enough.
Nevertheless, there are some that noted, that concerning global economic risks opening the RBA should not solely depend on. The economic activity in Australia also has its specific characteristics, and inflation is still an issue that is relevant at the national level. A rate hike could make it possible for the RBA to give a hint that it cares about inflation and will uphold price stability.
Potential Impact on Employment: A Two-Sided Coin
The effects of this decision on employment depend on several factors and relations between them that take place in an economy. Here, we explore two main opposing viewpoints:
• Stimulating Effect - Some people believe that keeping the current interest rates can help with having a beneficial effect about employment. Lower borrowing costs can incentivise businesses, especially the ones that often borrow money for, to fund expansion plans or equipment upgrade. It could have implications of stimulating more business and employment. This could lead to more employment being generated. Some industries such as construction may require cheap credit as they are the ones affected mostly by interest rates.
• Consumer Spending Slowdown - However, there is an equal and opposite force that can be made. Currently, inflation is high, and wages stay low meaning that the public will spend less money due to the limited amounts of disposable income. This could be a problem to organisations that major on the domestic market especially those in the consumption led industries such as retail and services industries. Under such an environment, either companies may resort to decisions such as hiring freezes or even laying off employees due to the situation weakening demand in the market.
Broader Economic Considerations
It climaxes the many sides in which the RBA affects the economy beyond the influence over employment rate. Here is a closer look at the broader economic implications:
• Inflation - A weakness of holding rates is the issue whether it will enable control inflation for a longer duration. This can reduce the purchasing power of the households and raise the cost of production for businesses affecting the whole economy. Thus, the RBA will have to pay attention to inflation indicators and intervene as necessary if inflationary pressure persists.
• Economic Growth - The approach chosen by the RBA of ‘watch and wait’, could provide some stability in the nearby. But if inflation persists, constantly high, it will put the RBA under pressure to increase rates even more in future periods. It could dampen the prospect of economic growth eventually and hence it should be minimised.
• Exchange Rate: Some of the monetary policy determinants of the Australian dollar exchange rate include those made by the RBA’s policy making. There might be also a decline in the Australian dollar rates if the extent of holding rates is kept. Although, this may enhance the competitiveness of Australian exports in the global market as well this may increase the cost of imports for the business and put added inflationary pressures.
What Businesses and Professionals Can Do
In this uncertain economic climate, businesses and professionals can take proactive steps to navigate the challenges and potential opportunities:
For businesses:
• Prioritize Cost-efficiency - Measures which could be undertaken to control costs may aid firms to be ready in case there are future inconveniences in carriers of expenditure items such as consumers. The staffing necessities appraisal and resource use is perhaps imperative.
• Strategic Planning - Organisations should ensure they continually analyse the market and, so, work on coming up with good tactics to deal with this new trend. A cutthroat approach may be to look for other sources of income in the year or expanding variety in products where demand is relatively low.
• Invest in Upskilling: It is believed that relevant skills of the employees and their effective development can contribute to the enhancement of organisational adaptation and competitiveness.
For professionals:
• Upskilling and Reskilling - Having the flexibility of mind about a constantly changing job market is indispensable. Through online classes or workshops and or even some certifications, they can easily update their skills and market themselves for new opportunities in the job market.
• Networking - Developing and nurturing managerial/organisational relationships may prove beneficial especially during testing economic times. Speaking at relevant conventions or trade fairs, joining and getting linked with like-minded professionals on Facebook or LinkedIn or accepting membership of a professional group/committee can create pathways to new opportunities.
• Financial Planning - Thus, adjusting personal finances and discovering how much could be spared or how much might have been taken out on loans will aid people if there are any adjustments to the state of the economy.
Looking Forward
To learn this, the RBA left its interest rates at a steady 4.35% offers options that are either positive or negative to the employment and the larger Australian economy. Slightly reducing the borrowing costs can increase investment and therefore generate employment in specific industries, a downside however is the sustained high inflation rate and the slow rate of expenditure.
What the employment pattern is going to take and what the general economic status is going to be are still in doubt. Several factors will decide the next move by issuing Central Bank’s cash rate, including the past ability of the cash rate to rein in inflation and global economic evolution. In the coming months, we can hope for an important focus of the RBA on inflation rates, on the employment level and on consumption indicators. Thus, promising labour force statistics by the ABS (Australian Bureau of Statistics) for the month, or the statement from the RBA on the monetary policy for the quarter might help to clear up the further developments from the bank and the economy.
Economic changes should be followed by tradesmen and entrepreneurs to be prepared for future economic changes. By keeping yourself tuned with the economic developments, RBA releases, and related reports, you can obtain decisive ideas in advancing your strategies. On the same note, business and professionals ought to be forward looking and be prepared to switch things up especially in this type of economy.
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