RBA Rates Decision – June 2010

Today the RBA announced to hold the cash rate for the month of June. That’s after several recent increases that have, in the view of the RBA moved the cost of money back to historically midpoint levels.

The next move on rates will be an interesting debate given the recent events of the Euro zone and the ripple effects this is having on the global share markets. It’s fair to say that sentiment has been affected by these events as values of global stocks have been hit hard, with Australia also sharing the brunt of what happening aboard and some would argue that the ‘Super Profits Tax’ has played its part for offering further uncertainty around the economy.

It could be as simple as this – if the Aussie economy weathers the global events better than other developed nations, once again due to our China and India connections, then we may see the need for further rate rises in the later part of this year, and a few more rises into the 2011 & 2012.

On the flip side there are many Aussie consumers who are too heavily laden with debt already and the adjustment of rates from their lows has taken hundreds of dollars a month out of the family budget and the purse strings just can’t take much more, so they are closing up shop and no longer providing the discretionary spending needed to keep the economy growing at 3%+ GPD levels.

I’d be hedging my bets a little each way, by keeping some funds in cash reserves if rates do move higher but on the other hand, I think that would require a two tier economy that would need to be driven by strong global demand for the products being made in China and India, and from where I sit, I don’t think the planets are aligning like they were in 2007, so I think rates will hang around these levels for some time to come and if the world stumbles, which it just may do, guess what, rates could actually come down.

For the foreseeable future I believe rates are going to remain stagnant. Keep alert of either positive or negative economic news, such as China GDP, Consumer Spending, Inflation and employment.

Naturally, this monthly newsletter is a good point to start…