RBA Rate decision – September 2013

Not even the biggest of mug punters would have bet on a further rate cut this month so close to Saturday’s federal election.  That’s right, as expected the RBA left the cash rate on hold.  Even though the RBA is independent of any sitting government, it is fair to say the upcoming election, in my view, is something the RBA must factor into their decision regarding the cash rate both this month and right up until the end of this year.

Why would this be the case?

We know from history that business activity can be impacted by the election promises being spruiked by each side of government to either win or hold power.  Furthermore a change in government can lead to improved business and consumer sentiment.  Positive sentiment leads to increased spending and this is ultimately reflected in GDP numbers.

So although the RBA held rates this month, it is fair to say the reason for this is the board are waiting on new data from their recent monetary policy easing. In addition, they also want to see the impact from the election result that will give them some indications as to the economic activity uplift.gdp

If the bookies are right we are going to have a Coalition Government come Saturday night, and within the next month or so following this outcome, we will start to see the data appear regarding consumer sentiment and business sentiment.  Up until this time, I don’t see any further cuts in the cash rate.

We wait in anticipation…..and enjoy the record low monetary policy settings for now.

 

(Those people 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.)