RBA Rate Decision – April 2014

Today the RBA has left the cash rate on hold at 2.5%.

So that’s another month where interest rate are at historical low. Now, Glenn Stevens made a parliamentary comment earlier this month, basically saying that they see a period of stable cash rate position and monetary position. Now that’s good news for the general economy because what it does is it sends a confident message into the business community and also the consumer community. They basically say that we are comfortable about where things at. That’s great!

Let’s look at the numbers that back that up. We saw consumer confidence is slightly down on February but overall on an upward trend. Business confidence is similar; slightly down – a bit more pessimistic than optimistic in the February NAB data but ultimately still moving in an upward projection. So that’s just might be a month where a bit of uncertainty is around.

However, we saw job growth. We see the ANZ numbers come through in regards to new job starts and the pleasing part about that was, it is mainly full time job. So although, we’ve talked about Ford and we’ve talked about manufacturing and all of those job losses, we are actually seeing more jobs being offered in the broader economy and that’s a good sign.

If we also look at the housing numbers, we saw HIA release their data yesterday with house sales up by 4.6%. Now that’s a big number. The important part about new home starts, is really about the flow of effects into the general economy. What we are seeing here in the mining site is we see the capital expenditure as being so prominent and is what driving our GDP over the last decade, slowing down and now we are seeing a transition into what we called a general economy as opposed to just the mining economy. Now, that flow of effect thing in terms of the jobs that it creates, its not just in the construction side so we can move those workers away from those mining areas and bring them back into mainstream constructions. But its also the flow of effects in terms of once the homes being build, we will see that finance being needed, new houses needed to be fitted out with new furniture and all the other fittings that go with buying a new home. So that also has a good flow of effect into retail sales and those type of things as well.

Broadly speaking, we are in a terrific position and I think that is going to put pressure on rates going forward. We saw inflation at a higher level, around that 2.7% mark at the moment and the other big thing is obviously, the dollar. We are seeing the dollar sitting around the 92 to 93 cents. If we see changes in the interest rate and a higher monetary position later this year and I’m expecting around September or October where we may need to see a move off this historical low levels, that’s not a bad thing because in real terms, we don’t want the economy to overheat. We don’t want prices in property market to over extend themselves to a position where we will see an adjustment.

So my message today is, when you look at your family budget, make sure you now starting to provision for interest rate moving up at least 0.5 percent maybe over the next 12 months. Factor that into your cost and your spending in your home. That’s an important message and that’s what I’m passing on to you today.

 

(Those people watching/reading this should be reminded this is an opinion comment by Ben Kingsley, and should not be used when making decision about financial matters without seeking further clarification and understanding of your own personal circumstances. This article is not advice you should rely upon. I recommend you speak to one of our licensed professionals before taking any action with your financial affairs.)