RBA Rates Decision – April 2011

For the x month in a row the cash rate has remained on hold as the RBA looks for further indications that the economy is continuing to grow following the recent major flood and cyclone disasters that hit our shores earlier this year.

If the economy rebounds quickly and the insurance works provide inflationary pressures on materials and labour, plus we combine what’s happening in Libya on oil prices and the flow on costs at the bowsers then the reality will be that the RBA will need to take a further look at tightening up cash in the economy by lifting rates higher.  In my personal view we might see a rise around the 0.25 to 0.5% range over the next 6 to 12 months.

However, if we continue to see softening lending approvals, combined with flat housing prices and most importantly softer consumer spending then I think our growth numbers in GDP terms will be a little subdued to what most might be forecasting.  The other variable that I see being a real player, given its forecasted cost increase on the average household is ‘household energy bills’, which is some quarters is being tipped to increase by some 60% over the next few years…….ouch.  These types of increases have real impacts on disposable incomes which then flow into lower consumer spending, which is good news from an interest rates perspective.

Right now there is no clear direction in my eyes as to which argument is going to win the day.  Yet if I was a betting man I’m still one who believes we are in a tightening cycle for now, but I don’t subscribe to the rhetoric that it’s got a long way to go up from here.   Time will be the judge.

 

(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.)