RBA Rate Decision – March 2014

The RBA has just announced their decision to keep rates on hold.

What we have seen from the start of the year where we had lots of economists still tipping a rate reduction, and a cash rate around 2%, we are currently sitting on 2.5% and the commentary is changing. The flavor of the message from the RBA is changing from a ‘we still got some further movements to go if we needed to’ to now being ‘we think that the rates are about right’. So, monetary policy is going to be set and I think its going to be set-and-forget until at least the middle of the year. I don’t see rate rises before that time and here are some of the reasons behind that.

I still think that the employment story is an unusual one and an uncertain one. We are seeing changes in manufacturing, and we are seeing job losses in the broad industry like the automotive industry and obviously, the Alcoa’s decision down in Geelong. It’s then starting to put a bit of a segment concern around the general economy and the business confidence in the marketplace at the moment. On the other side, we are seeing inflation a little bit higher in the last month than what most economist and what most people are predicting so that is worrying the RBA, I’m sure. They don’t want to see inflation represses and certainly from a housing point of view, again, if we see a strong run in house prices, we are going to see the RBA’s hand being forced to move rates higher. The dollars are still sitting at the right slot, that sort of 89 – 90 cents range but bearing in mind that if we do see the actual interest rate pushing higher then we may see a slightly higher dollar which is again not great for export and in terms of the overall GDP numbers.

So the wrap for this month is; rates on hold. It’s a wait and see strategy from the RBA and I think it’ll continue to remain that as more and more data flow through. If we see too much price rising bubble occurring in the property market, we are not there yet. Don’t panic. But if we do see that, the RBA will be forced to move. Otherwise, we will see rates on hold for the medium term. Thanks for now and have a great day.

 

(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.)