The impact interest rates have on our economy

With the latest interest rate decision handed down by the RBA, interest rates are a hot topic of conversation. It is well reported on that interest rate rises in Australia can have a significant impact on the economy. But do interest rate rises help or hinder the economy?

While interest rate rises may encourage savings through higher returns, control inflation as the economy slows and boost the financial sector as they earn more through lending and borrowing, the impact of interest rate rises on the economy can be complex.

When interest rates rise, it becomes more expensive for consumers and businesses to borrow money which can slow down economic activity. People having less disposable income can lead to a decrease in consumer spending and a reduction in investment. Businesses are also less likely to invest in new projects.

Higher interest rates can cause a decline in the housing market as the cost of borrowing for mortgages becomes more expensive. This can result in a decline in real estate prices and a decrease in construction activity.

Additionally, higher interest rates can lead to a stronger currency, in turn, making exports more expensive and less competitive, which can lead to a decrease in exports and a decline in economic growth.

Interest rate rises can also affect the stock market, as higher interest rates can reduce the appeal of riskier investments and lead to a decline in stock prices.

Overall, interest rate rises can lead to a reduction in economic activity, lower consumer spending and a decline in the stock market.

If you are a property investor with loans on your rental properties, now might be a great time to talk with your WSC Group Client Manager to discuss whether a tax variation might assist with your property cash flow.

If you are a business owner, now might be the time to talk strategy with your WSC Group Client Manager to plan ahead.

If you are a self-funded retiree, now might be the time to book a consultation with our WSC Group Private Wealth team to ensure that your retirement plans are aligned with your long-term financial goals and address any potential challenges posed by interest rate rises.

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