Finance advice

RBA hints at more rate cuts

By James Mitchell

The Reserve Bank’s statement on monetary policy for February suggests the cash rate is still not low enough.

Prior to the February board meeting, the cash rate had remained at the same level since August 2013.

The RBA observed that the interest rates affecting households and firms had declined a little over this period, and that very low interest rates have contributed to a pick-up in the growth of non-mining activity.

The recent significant fall in oil prices, if sustained, will also help to bolster domestic demand, it said.

“However, over recent months there have been fewer indications of a near-term strengthening in growth than previous forecasts would have implied," the statement said.

“Hence, growth overall is now forecast to remain at a below trend pace somewhat longer than had earlier been expected.”

Accordingly, the RBA expects the economy to be operating with “a degree of spare capacity for some time yet, and domestic cost pressures is likely to remain subdued and inflation well contained”.

In addition, while the Australian dollar has depreciated, it remains above most estimates of its fundamental value, particularly given the falls in key commodity prices, and so is providing less assistance in delivering balanced growth in the economy than it could, the central bank argued.

In November 2014, the RBA forecast growth through 2015 of 2.5 per cent to 3.5 per cent.

“This forecast has now been lowered to 2.25 per cent to 3.25 per cent,” Westpac Group chief economist Bill Evans said.

“That is, the mid-point has been lowered from 3.0 per cent to 2.75 per cent. This 0.25 [percentage point] loss of growth is expected to be concentrated in the first half of 2015.

"Forecast growth in 2016 has been maintained at 3.5 per cent (mid-point),” he said.

Mr Evans said these growth forecasts are significant because the revised forecasts incorporate: the expected impact of the 0.25 per cent rate cut announced on February 3 and, critically important, “the assumption that the cash rate moves broadly in line with market pricing at the time of writing”.

“Market pricing currently envisages a further full 0.25 per cent cut plus another possible 10 basis points,” he said.

“In short, the RBA is expecting that growth in 2015 will still be below-trend despite the current rate cut and the markets’ expected further rate cuts.”

Domain Group senior economist Andrew Wilson said another cut is likely, given that the economy received minimal stimulus from the succession of rate cuts between October 2011 and August 2013.

“We haven’t had much action from cutting from 4.75 per cent to 2.5 per cent, so I’m not sure what a 0.25 per cent improvement is going to do,” Mr Wilson told Mortgage Business.

“Certainly the Reserve Bank had to act – it’s really the only tool in the box that we’ve got left,” he said.

AMP Capital chief economist Shane Oliver said the Reserve Bank had been forced to cut rates – and that there were good reasons for it to cut again.

“Growth is too low, running at around 2.75 per cent through last year, which is well below potential of around 3.00 to 3.25 per cent, and the level needed to prevent a rise in unemployment,” he said.

“Confidence is subdued, having well and truly given up the post-2013 federal election boost.

“Partly reflecting this, consumers have started to become more focused on paying down debt again, which is a sign of increasing caution and will threaten spending if sustained.”

Mr Oliver said the Reserve Bank would also be feeling the pressure from the rate cuts being made by the central banks of many other countries.

“To the extent it is forcing monetary easing around the world, it adds to confidence that sustained deflation can be avoided. Australia is not immune,” Mr Oliver said.

“As the Reserve Bank wanted to see a continued broad-based decline in the value of the Australian dollar, it had to re-join the easing party lest the Australian dollar rebounded.”

While the economy continues to cool, homeowners are expected to benefit as lower fuel prices and cheaper lending rates put more money in their pockets.

All four of the major banks have now passed on the RBA rate cut in full.

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In this episode of the Smart Property Investment Show, Dominique Grubisa joins host Phil Tarrant to share her personal story which saw her hit rock bottom with excessive debt during the GFC.

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Dominique unpacks how, by relying on her background in law, she was able to overcome that debt and in doing so develop a unique investment strategy which she believes many can utilise today.

Dominique discusses distressed properties, and how she goes about finding them in order to buy property well below market value. She shares the process of identifying distressed properties as well as the controversy surrounding this buying method.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

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More than just bricks and mortar, experts often regard property investment as a ‘game of finance’. As such, a good finance strategy can lead any investor to success.

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To hear more about these services, make sure to tune into this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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    In this episode of Property Showcase, Michael Beresford joins editor of Wealth James Mitchell to unpack why recent political changes are not reason for concern for Australian investors.<\/p>\r\n

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Many investors who would have been successfully approved for finance last year are struggling now to either begin or continue their property investment journey because of the current financial climate.

In this episode of the Smart Property Investment Show, broker John Manciamelli and Momentum Media director Alex Whitlock joins host Tim Neary to discuss how APRA changes and the royal commission have resulted in a tighter lending economy and what that means for Australian investors.

They discuss what traps investors should avoid if they are trying to obtain finance, the four key growth drivers in a property market and unpacking trust structures while revealing one type of trust that you should miss.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

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AREAS MENTIONED:

Hobart
Bondi
Deception Bay

 

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More than just bricks and mortar, experts often regard property investment as a ‘game of finance’. As such, a good finance strategy can lead any investor to success.

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Getting finance approved in this tightening lending environment

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