For the first time since December 2012 the Reserve Bank of Australia have cut our national cash rate by .25 per cent. Interest rates currently stand at 2.75 per cent, setting a 50-year record low for the Australian cash rate. Compared with many other nations, interest rates in Australia are still considerably stable (and high). Economists view May’s rate-cut announcement as unexpected – yet they are a welcome relief for a number of local industries who have seen their returns drop or stall quarter-on-quarter. Today’s Chisholm & Gamon blog takes a look at motivation behind the RBA’s May decision – and how this change may affect home owners and mortgagees.
The decision to drop interest rates has been welcomed by the Australian public, as is generally the case whenever an extra amount of disposable income becomes available in a household’s budget. The RBA hopes May’s rate cut will provide the ‘breathing room’ to encourage domestic spending and a subsequent boost in the economy. The property market is one industry sure to see increased demand and competition, with many first home owners now taking advantage of fixed rate opportunities when rates are at record lows.
The effect of rate cuts over the past 18 months is beginning to slowly filter into the national economy. Experts believe the effects of prior interest rate cuts have taken longer to ‘flow down’ into the wider economy than expected – which is further motivation for May’s discount. Slow growth in almost all national industries has continued in 2013, and interest rate cuts are primarily seen as a way to stimulate the consumer into spending, the investor into investing, and the business owner into further employment. Unemployment rates are also expected to drop due to May’s rate cuts.
The RBA have continued to take note of the international economic climate, identifying that China is stable and America continues to slowly improve. Despite growing global stability, further rate cuts may be on the horizon with a federal election coming in September. The RBA will continue their conservative monetary policies – as it is desirable to leave room for movement to adapt to any economic unpredictability in future.
The final word on the May monetary announcement is that prospective property buyers should consider making a move. Favorably low interest rates simply won’t be available to forever – they’re merely a short-term strategy for greater economic prosperity. If buying is on your agenda – the ball is in your court.
Last week the Reserve Bank of Australia released their monetary policy report for April 2013. Interest rates are left unchanged, remaining at a competitively low 3 per cent. The RBA’s decision means that Australians will benefit from another month with a record low cash rate. Since the 0.25 per cent reduction in December 2012, the cash rate has remained unchanged. How might things alter in future? International economies and domestic spending will surely influence decisions throughout the remainder of 2013. C&G report.
As noted by Governor Glenn Stevens in previous months, the RBA’s most recent decision has been heavily influenced by the economic circumstances of China, the USA and Europe. Europe continues to operate in a recession-like environment without any promising signs for change in the near future. Italy, Greece, Spain and Cyprus are far from robust members of the EU currently. It’s not all bad news however – America has shown slow, consistent economic improvement. China is the envy of all nations, continuing to show signs of unprecedented growth. Since March, there haven’t been many ‘status changes’ to economies globally.
Internally, there have been some changes to the spending habits of Australians, including moderate growth in private consumption. A return to the vibrant consumer confidence and purchase of luxury goods experienced pre-GFC is not likely in the short term, however – with spending on-par with 2012’s records to date. The property market is steadily displaying signs of growth with rising dwelling prices and high rental yields. In relation to foreign trade, the export and mining industries continue to prosper.
While it seems like this economic news is similar to that reported in the past, RBA Governor Glenn Stevens notes that interest rate cuts in 2012 have had the desired effect. The outlook for Australia’s economy is generally positive with healthy employment rates, a strong dollar and expected further growth in the coming years.
Economic commentators are not expecting an interest rate change next month. With inflation close to the middle of the RBA’s target range, there is a chance rate cuts may be made later in the year – providing that there are no major incidences in exterior global economies.
The Reserve Bank of Australia has made its March monetary policy statement, opting to keep rates unchanged at 3.0 per cent. This current cash rate is a record Australian low, which explains why the RBA may be standoffish about further interest rate reductions. Our national cash rate has remained the same since our last 0.25 per cent reduction in December 2012. Influential factors to take into consideration include the global economy, public spending and growth trends locally. Many forecasters are predicting a rate to drop to 2.25 per cent by the year’s end. C&G reports on what this means for home owners and those wishing to acquire a property in the near future.
The RBA last week released their monthly statement, with Governor Glenn Stevens explaining that the financial climates in China, Europe and the USA have been a major focus for the board in March. The USA has shown positive signs of growth while Europe is also in a better position than at this time last year. Meanwhile, China is continuing to grow at a rapid rate.
The report also identified that there has been moderate growth in the local economy with the housing market on the rise, paired together with an increase in employment opportunities. Public spending’s forecast is not so bright, with budgetary constraint likely to continue. Exports of resources have also strengthened throughout February, and the Australian dollar raised half a US cent to $101.81 the day prior the RBA’s monetary policy announcement. The board has reported that spending trends and inflation have remained consistent with predictions.
While some homeowners may be disappointed with the RBA’s decision, economists believe the banks may still implement a 0.25 per cent interest rate cut in an attempt to attract new mortgagees. Even if this is not the case in the immediate future, many pundits expect rates will fall to 2.25 per cent by the end of the year.
Confidence in the RBA’s monetary policy direction is high, with commentators praising the actions of the board in light of Australia’s relative economic health in the wake of the GFC. The population at large seems to be buoyed by the positive reports of 2013 – we’re enjoying unprecedented numbers through open for inspections – a sign that the property market is back and stronger than ever. Now is certainly the time to take stock and plan to purchase – or perhaps upgrade to a new residence – before the property market’s inexorable upwards climb begins again.
While some soon-to-be first home owners may have groaned when their hopes of an interest rate cut this month were dashed by the RBA’s Governor Glenn Stevens, many in the finance community noted the decision to hold our interest rates steady at 3% as a step in the right direction, and an indication of stability. Today, C&G write on the positive stance taken by the RBA in anticipation of a strong market for 2013.
2012 was a year that involved watching and waiting for many aspirant and current property-owners. Who would move first? Market expectations or market forces? The RBA observed the economy carefully last year, responding with a series of interest rate drops from 4.25% down to our current (historic) low of 3%. The Australian dollar remains high – something unlikely to change until our northern neighbours in America and Europe fully address the economic challenges they face. That said, both Europe and the US are working through their issues – America in particular bringing down deficits effectively. China is beginning to re-invest in Australian iron, with exports strong for the last quarter paired with a 6% increase in price per tonne. Inflation is controlled at 2-3% (acceptably within forecast) – the RBA’s major concern is in relation to employment. Australia’s wages continue to be high, making our exports far from competitive and restricting the growth of small business growth. It’s not all bad news though – happily, residential investments have grown (particularly for units) in capital cities across the board. The RBA’s ‘wait and see’ approach for February should be interpreted as a sign of confidence. Although the economy has improved, the RBA will wait to see the full ‘trickle down’ effect of 2012’s rate cuts before considering any further discounts to the cash rate.
More locally, the bayside areas of Melbourne are enjoying strong consumer demand. With the property market far from over-supplied, Chisholm & Gamon are anticipating a busy and successful tail end to summer real estate sales. Many economists suggest a further two rate cuts over 2013, whilst UBS predict a rate cut in March (touting a 62% chance of one, in fact!) Regardless of further cuts, the home buyer has returned to market in 2013 hungry for the opportunity to purchase before rates begin their inexorable climb upwards, locking them out of blue chip suburbs which grow in value annually. Remember – it’s not about timing the market – rather, investment successfully centers around purchasing intelligently and spending time in the market.
When Governor Glenn Stevens announced the RBA’s decision to lower the national cash rate by 25 basis points to 3% this month, mortgage holders and businesses across Australia breathed a sigh of relief. With many expecting the RBA to have dropped rates back in November, December’s rate-cut decision will hopefully provide stimulus across the economy to shore up our retail sector and further enhance buyer confidence. Today’s C&G blog looks at some of the reasons behind the RBA’s move to lower interest rates.
The RBA note global growth is subdued, and likely to remain conservative for some time. This is broadly in response to instability in Europe and uncertainty over the financial situation in America. Commodity prices are lower than earlier in the year, yet sentiment in financial markets locally appears to have improved due to signs that Europe is attempting to ‘get its house in order’. Happily, capital markets remain open to well-rated Australian banks, who appear to be well-resourced. Private spending is expected to grow, but not at the rates experienced pre-GFC.
In response to the RBA’s announcement, Treasurer Wayne Swan responded that ‘what we’ve seen in this quarter has been a pretty savage reduction in our terms of trade.’ Indeed, the RBA has predicted that we will experience an extended period of low interest rates in an effort to bolster export prices. In terms of national growth, our economy grew at an annual rate of 3.1%, which is down from 4.3% in the year to March. This puts the Government’s plan to produce a $1.1 billion surplus in doubt – although economists are unconcerned about this eventuality. A medium-term plan of ongoing job creation and financial recovery will do more to shore up our economy than a surplus in the short term. In relation to residential property, there are positive indications that investment in new dwellings are on the rise. Property prices are moving incrementally upwards across Australia, and the rental market continues to enjoy strong demand. The RBA believe the reduction in the national cash rate will foster sustainable growth in demand and produce acceptable inflation outcomes.
For local householders and investors in the area Chisholm & Gamon service, this additional drop in the national cash rate may further enhance competition in the market. First home owners are making an eventual return to market, and will likely soon be once again competing with investors. If you are considering adding to your portfolio in the area – now is the time to do it, before the market continues to gather upward momentum!