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Ben Kingsley Blog post by Ben Kingsley

RBA Rates Decision – September 2012

The RBA today decided to keep the official cash rate at 3.5%, which was in line with economists and market expectations.  This decision was most likely made without the full impacts of several key data releases yesterday being fully assessed, but which point to a further slowing in the Australian economy.

Here is a summary of some of the data, which the RBA would be keen to analyse before October’s meeting:

  • Retail sales fell 0.8% in July which was below market expectations.  What’s important about this decline is that it’s the largest decline since October 2010.  Overall retail sales are up 3.5% for the year , but trending downwards when you note that up until the June figures they were up 5.3% for the year.
  • ANZ job ads declined 2.3% in August, the concerning trend here is its the fifth consecutive monthly decline.  Year to date end of August, job ads have declined 9.6%.
  • Company profits were down 0.7% in the June quarter, this is the third consecutive quarterly decline. Company profits are down 6.5% for the year to June.
  • The AiG performance of manufacturing index increased to 45.3 in August, up from 40.3 in July. Although an increase from July, a reading below 50 indicates that manufacturing is still contracting across Australia.
  • Inventories were up 0.6% in the June quarter, adding to concerns about a slowing economy. Furthermore it is the third consecutive quarterly increase in inventories, with mining inventories leading the way. (For those new to this concept – increasing inventories means more in stock – less sales/buying occurring)
  • The TD-MI inflation gauge increased 0.6% in August, following a rise of 0.2% in July. This was the largest increase in 17 months and has resulted in their inflation measure now indicating an annual rate of inflation rise to 2.2% in the year to August. In theory, this measure now places the annual rate back in the RBA’s target inflation band of 2-3% for the first time since February of this year.

The recent economic data out of China also suggest a slowing in their economy, which naturally has a flow on effect for us.

In reviewing this data, the majority of it points to towards a further easing of the cash rate, although the inflation number is a spanner in the wheel.   The release of the minutes of the September meeting later this month will shed some further light on the board’s position, but in my humble view the case for a further reduction in the cash rate (0.25%) in the next month or two is necessary to keep our economy growing.  Noting the flow on effects in reducing the Aussie Dollar and increasing our exports is also a bonus the economy could do with moving forward.

 

(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 financial professionals before taking any action with your financial affairs.)

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