Effects of Queensland Floods in 2011

Inflation, Monetary policy, Economics

Part 1

The effect in the probability of an increase in the overnight cash rate will decrease in the aftermath of the Queensland floods. Because of the decrease in the probability of a .25% increase (decrease), it is likely the cash rate will not change in the month of January or on February 1st. This is in part because of the effects of the Queensland floods will have had on the national and local economy. Effects of the floods can also be observed in the form of low inflation and lack of economic growth, but these are considered to be “temporary adverse effects” so it is likely that rates will increase in the near future but not in this period (Jan-Feb 2011) of time.

On the 1st of February 2011 the Reserve Bank Of Australia during it's scheduled meeting decided not to increase(decrease) the overnight cash rates from 4.75% to 5.00% (or 4.50%) and instead chose to keep the rates at 4.75%. This was mostly due to recent flooding in Queensland. The floods resulted in damage or destruction to physical capital where flooding occurred. Because of all this the economic growth has not and will not grow as much as it would otherwise have done if the floods never occurred. The amount of growth affected because of recent events will depend on the extent of the damage the event caused as well as how long it will take to rebuild all infrastructures. Because of this lost economic growth the RBA chose to keep the overnight cash rates at 4.75%.

This can also be seen by observing the data (see appendix A). As can be seen the data is very close to matching 4.75% and is very far away from 4.50% and 5.00%. This observation alone is a good indication of what could possibly happen.

Part 2

Trading In The 90 Day Bank Accepted Bill Contract.

Based on research I conducted I believe the short term interest rate will fall over the coming months. This prediction is based on several factors that would potentially cause a fall in interest rates. These factors include the...
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