RBA Rate Decision – February 2014

Hello Ben Kingsley here with the RBA rates announcement just released.

Cash rate remained on hold at 2.5%. The RBA will also release the minutes of the meeting which will give us a further indication in terms of how they’re looking and what sort of position they are taking in terms of rates.

Right now though, I think the settings are about right. We saw this week the release of inflationary data and they are higher than expected so those people who are looking or the commentators who are thinking we might see one or two more rate cuts coming through, that’s not necessarily going to be in play. The overlying inflation number was 0.8 for the December quarter and the underlying inflation number was 0.9, again, higher than expected.

The over the year average would now looking at around 2.7 and 2.6 respectively in terms of that underlying and overlying inflation number. And that’s within the RBA range, so the settings are about appropriate for now. Interestingly, over the last twelve months we’ve seen the Australian dollar depreciate around 15%. That’s great news for the Australian economy because obviously in terms of the actual overall GDP, the trend in economic activity is below par or below that two-and-a-half to three percent which is where that sweet spot is for our economic growth and prosperity. So right now what does that mean for you?

What does it mean for you in terms of what you want to do with your home loan?

Well, right now I’ll be keeping rates as the variable rate is good and then starting to think about fixing maybe some of that rate because what we could see in the second half of this year for the very very first time, we actually could see the talk over rate rise. If we see really strong price activity in the housing sector where we’re seeing strong growth in values, then the RBA will be forced to move and bring up the rates. But I still believe that we will see no rate rise unless that occurs because they’ve got the challenge around the dollar, if they pull the rates up it’s going to put pressure on the dollar, pressure on exports and our overall GDP performance.

So it’s an interesting time. It’s a time to sit down and have a conversation with one of our advisors to see what’s right for your circumstances. Money is very very cheap historically. It hasn’t been this good for a long time. Do we want to lock a bit of that money away and take a hedge position or do we want to keep riding it out, that’s a conversation that we would love to have with you.

So make sure you talk to one about advisors and that’s the wrap for the RBA decision for this month.

 

(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.)