RBA Rates Decision – March 2011

The cash rate remained on hold again this month as the RBA awaits more critical data on the performance of the economy before looking to adjust the cash rate. Most economists expect further rate rises in 2011, with many tipping an increase in the cash rate of around 0.5% over the course of the year.

Events in the Middle East region could play a part in our economy, as the escalation of unrest pushes oil prices higher and in turn this could raise some issues around the inflationary impact. In very simple terms, if higher oil prices flow into increases in inflation than most government reserves, who monitor the flow of cash into their economies, may need to increase the cost of this money to stem further inflation. By doing so, this has the potential to slow the recovery of these economies as the cost of borrowing money increases and both private and industry investment slows, which in turn impacts on employment and GDP growth. So, we need keep an eye on the situation in the Middle East and its flow of effects to the rest of the world.

China’s inflation pressures are also causing some concern, and this could have a serious bearing on our economy as it is clear our growth is being driven by resurgence in the mining sector. China Central Government has increased the cost of money in their economy to try to slow down the price inflationary effect on their internal economy. This could flow through to lower commodity prices, which could take some of the heat out of the economy, which means less pressure on our interest rates increasing.

One thing’s for sure, nobody really know what lies ahead, but if the forecasts are correct (see at the bottom of this month newsletter the forecasts for interest rates from some major lenders), then it’s better to expect the interest costs of our mortgage will rise sometime this year, so be ready for it.

 

(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.)