RBA Rates Decision – May 2011

The RBA has left the official cash rate on hold again in May, making it 6 months since the last cash rate movement.  Minutes from the previous RBA board meeting certainly indicated that the board position was that rates remained adequate for the near term, as subdued consumer spending and the impacts of major disasters still filter through the economic numbers.

The latest quarterly inflation data released last week sparked some interest as the headline inflation reading was 1.6% higher moving it outside the RBA stated comfort range. However, don’t panic, the underlying inflation reading, which is the preferred reading for the RBA rose by 0.85% for the quarter, which took this reading to an annual rate of 2.25%, which lies within the 2-3% range the RBA uses as its comfort range for inflation.

These increases were lead by rises in food (most likely influenced by Queensland dual disasters), fuel, health care and education.

Most economic forecasts are still factoring one or two rate rises before the end of the year.  St George are on record as saying they see a rate rise in August and November to put the brakes on what they believe will be a robust economy.  I’m going to go on record to say I can only see one rate rise this year with a second possible rise in early 2012, pending on consumer spending.

Once again if these rate rises occur, house prices will suffer, but not in all states and suburbs.  Rate rises of 50 basis points from this point are definitely going to affect most outer rim suburbs and new estate values, where there are high levels of mortgage and household debts and it might also have an impact in market sentiment at the top end of town, as the masses listen to the ‘noise’ of the press and scare themselves into submission.

 

(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.)