C&G – Official RBA Announcement October 2013

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Yesterday the Reserve Bank of Australia announced their decision to leave the official cash rate unchanged at 2.5%. Today, Chisholm & Gamon look at the most recent RBA monetary policy decision and how it will impact upon the property market over the coming months.

It is widely understood that the Australian economy has slowed down and is growing at below predicted trends in some sectors.  This condition is considered by economists as normal – evidence that the economy is adjusting to lower levels of mining investment. As the year elapses, we can expect to see confidence levels increase across the economy – especially when it comes to household and business sentiment.

Of late there has been a clear increase in demand for finance from households, with data showing to a shift in savings behaviour when responding to “declining returns on low-risk assets”. Such a response illustrates that the economy continues to feel the positive impact of interest rate cuts from earlier in 2013. Despite the fact that unemployment has nominally risen, “inflation has remained steady and will continue to do so as the cost of labour moderates.”

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RBA Governor Glenn Stevens notes that “the easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values…. the full effects of these decisions are still coming through, and will be for a while yet.”

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Immediately after the RBA’s most recent announcement, the Australian dollar gained 1/3 of a US cent – rising to $93.74.  This level is still 10% below its previous high in April. The RBA has cut rates a total of 8 times since late 2011, all with the aim of increasing economic activity outside of the mining industry.

RP Data-Rismark has shown Melbourne and Sydney property prices have jumped up to 2.5% in September. “We haven’t seen market conditions this strong since April 2009 for Sydney and May 2010 for Melbourne,” Tim Lawless from RP Data commented.

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So what of key trading partner China and its influence on our economy?  The world’s second largest economy has grown and expanded in September – and with Australian retail showing signs of improvement, we can look forward to another period of happy trade with China.

The central dilemma the RBA face? Whether to cut rates further. With property prices on the rise, unemployment slightly higher and gathering strength in the Australian dollar – economists are divided over such a decision. Tom Kennedy of JP Morgan believes another rate cut may be on the cards this year, a sentiment not shared by HSBC chief economist Paul Bloxham. His notes that the RBA’s decision yesterday was “fairly bland” and did not provide enough insight into future movements from the RBA board.

All eyes focus on our inflation levels and the next announcement from the RBA on Melbourne Cup Day.  What will you be tipping?

When Banks Behave… The RBA August Announcement

Today at Chisholm and Gamon we look at the RBA’s August decision to cut interest rates and the implications for both potential vendors and those looking to enter the property market.

Here’s a new reason to like the major banks – most of who have passed on the RBA’s interest rate cut announced on Tuesday.  This cash-rate cut was a carefully considered (and broadly expected) move by the RBA – one that should see the economy stimulated and help with adjustment as we reach the end of the resources boom.

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”In Australia, the economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment,” Mr Stevens CEO of the RBA noted.

The Australian economy has somewhat softened, says senior economist at Westpac Huw Mackay. “After today’s projected move, we’d be looking for another half of a per cent, and we’d be expecting that timing to be early 2014 for the trough to be reached,” he said. Analysts agree that August’s lowering of interest rates will be the first of two or three cuts in the coming year. Sally Auld, an interest rates strategist at JP Morgan, states non-mining sectors need more stimuli if they’re to be considered Australia’s leading source of growth. “My sense is that the RBA is just becoming a little bit more worried about the impending drop-off in mining sector investment and the lack of momentum in the non-mining economy, and that exposes the Australian economy to a period of potentially quite soft growth,” she said. “There’s perhaps a little bit more proactivity coming in from the RBA in terms of managing the demand cycle.”  Analysts suggest the Reserve Bank is in ‘wait-and-see’ mode, with further moves likely to be data dependent.  ”The case for the next rate cut – should there be one – needs to be built from scratch,” Deutsche Bank’s chief economist Adam Boyton said.

The August cash rate cut was quickly shared with banking customers – increasing the attraction for households to borrow, invest and spend. The rate cut was passed in full, bringing mortgage rates down to their lowest levels since the financial crisis. Tuesday’s rate cut will spread through the wider economy, reinforcing confidence in home ownership and the building sector.

August’s rate cut is expected to provide some relief for borrowers, but manager of the Wagga Business Chamber Larry Buete doesn’t expect businesses or consumers to start spending immediately. “It’s six weeks out from the election and with all the promises being made left and right, I think people will want to wait and see who gets in before they loosen their purse strings,” he said. He said while rates are at a record low, spending habits have changed with more Aussies opting to save.

While the retail sector may not see a boost in the short term, the housing industry will reap benefits thanks to lower interest rates for home owners. Should you be considering buying or selling, now is the time to act. With interest rates at historic lows, you’ll soon be seeing a flood of investment purchasers and first home buyers entering the market – making it an opportune moment for vendors to sell under strong competition. Contact Chisholm & Gamon for more details on market trends in your neighbourhood.

Chisholm and Gamon: The RBA July Announcement

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For the second consecutive month the Reserve Bank of Australia has announced it will hold the cash rate steady at 2.75% following their most recent monetary policy meeting. Governor Glenn Stevens noted that this ‘stasis’ decision was appropriate for the current climate and stated that “the Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing” should be required to support demand. Real world speak? Further cuts to the cash rate are possible should the market weaken. Today, C&G unpack the RBA’s latest announcement.

Recent economic reports have been consistent with global growth, being slightly below average for the year. There is a positive outlook for a prosperous pick-up next year – and although commodity prices have fallen, they remain at historically high levels whilst inflation has moderated in many nations, helping to stabilize the global financial position. Inflation has been consistent with the medium-term target and is expected to remain so over the next two years. The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values, and further effects from current policy can be expected to develop over time. While the pace of borrowing has been subdued of late, there are signs of increased demand for finance by households, showing strength in the retail and housing sector.

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Recent data has confirmed that the Australian economy is been growing slightly below trend, which is predicted to continue as the economy adjusts to lower levels of mining investment. Though labor costs have moderated, the unemployment rate has risen marginally over the past year and some analysts predict that if this trend the RBA will need to cut rates aggressively within the next six months.

Currently there is great focus on the Australian dollar, which has declined by about 10 per cent since early April of this year. This has left the Australian dollar well below parity with its American counterpart, providing a much-needed boost to the economy in the export sector. It is possible that the exchange rate will depreciate further with time, which according to the statement by Governor Stevens would “help to foster a rebalancing of growth in the economy”. In line with this decline, manufacturing figures are positive, responding well to the healthy trading climate.

The next official inflation reading – to be announced on July 24 – will play a significant role in the RBA’s August cash rate announcement, so the cautious decision to hold the July rates shows the Reserve Bank’s desire to see how the next few months unfold for the economy. The Board has judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target.

C&G on the RBA Announcement for May

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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.

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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.

Chisholm & Gamon On April’s 2013 RBA Monetary Report

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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.

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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.

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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.

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