For the first time since November 2010 the Reserve Bank moved on interest rates. Luckily, this time it was a downwards move, breaking a more than two year cycle of increasing interest rates.
Mortgage holders can now breathe a sigh of relief not only because, on an average loan size, they will have an extra $50 per month to play with but also it brings to an end the ongoing fear of interest rate hikes that have been a contributing factor to low consumer confidence levels, at least for now.
The Reserve Bank Board meets on the first Tuesday of each month, except for January, with the results of the meeting announced in mid afternoon. Along with the announcement is a short statement of Monetary Policy Decision, by the Governor, Glenn Stevens. This statement gives a brief overview of the factors that the Board considered in arriving at their decision.
In making their decision to lower rates this month the Board cited moderation in the growth of the global economy, a slowdown in China, increasing demand in Asia after the various natural disasters in the region and also the well publicised economic woes in Europe.
Closer to home the Board noted that the domestic economy had moderate growth, but terms of trade had peaked and were now in decline. They also noted that whilst investment in the resources sector continues to boom, cautious behavior by households, the high exchange rate and the slight rise in the unemployment rate have had a dampening effect. The forecast for inflation is for it to remain within the desired 2-3% target band through 2012 and 2013, however that is not taking into consideration the possible inflationary impacts of the carbon tax scheme.
Finally, the Board noted that they had maintained a mildly restrictive stance on monetary policy over the last period, however with moderating growth, inflation figures well within the target band and subdued confidence outside the resource sector they considered a rate cut would now be consistent with achieving sustainable growth over time.
Mark Lewis is the Executive Chairman of Bernie Lewis
This article is for general information only. Since everyone's personal financial situation is different this article can't be taken as financial advice. If you would like to discuss this article further or how it could relate to your personal financial circumstances please give us a call on (08) 8300-8300 so we can discuss it with you in more detail.