RBA Rates Decision – July 2012

Welcoming in the new financial year and after two rate movements in recent times reflecting a total of 75 basis points the RBA is now at the point of sitting on its hands to see the impact of its monetary policy, especially following the recent ‘surprise’ GDP figure showing the economy growing at 4.3% p.a which caught most analysts out.

We all know that our lending institutions have not passed on the full cuts in monetary policy that the RBA has undertaken, however the cuts that have been passed on will have a further positive effect, as household income that was being paid in interest to the lenders is now back in the hands of the household as disposable income.  Some will continue to save and pay down debt, but others will choose to use this money for discretionary spending from clothing to even buying a new house/unit and all the items needed to make it a home.

Events in Europe are still high on the RBA’s watch list, as the real issue for the central bank is the global lending of money and the cost base for which it is traded.  Right now money is still being traded (lent) but we all saw the initial impact of the GFC, which was the direct result of money market freezing, which bought the whole system to its knees.

Locally I think the RBA believes they currently have the right setting in place to see manageable growth for the short to medium term, so I’m not expecting the introduction of a Carbon Tax or the current two speed economy to provide the RBA any reasons to reduce rates in the next few months.

For me the only real justification for a further rate cut is going to be external from this point forward and not domestic, but if I was a betting man I do expect that Europe is heading for more trouble which will have some global impact and Australia won’t be completely insulated from it.  The impossible question to answer is “when” and “how big” it is going to be.

 

(Those people reading this should be reminded this is an opinion comment by Ben Kingsley, and should not be used when making decisions 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.)