Rate Cut or Not ?

Dr AndrewAustralian Property Investment, Interest Rates0 Comments

Hi Everyone

Commentators are divided as to the likelihood of the Reserve Bank of Australia announcing another interest rate cut in August, especially in light of the June Quarter CPI report that has just been released.

The uncertainty surrounding Tuesday’s decision is reflected in the market, where pricing for a rate cut is about 50-50. The vast majority of economists still expect an easing.
In general, the market tends to get the RBA right rather than economists but we also need to look at what the market thinks via the strength of the Aussie Dollar which is trading near its recent highs above 0.76 USD.

I believe the RBA has sufficient data to warrant a cut to 1.50 % but can also see a delay till November as the Housing Market has been showing some resilience in the last quarter, even with APRA and the banks tightening credit policy to limit the amount of investment lending being made available to property investors.

Its interesting to note that we live in a world that is awash with QE but there has not been any market commentary on the possibility of the RBA actually using anything else than monetary policy to stimulate the economy.
It is reassuring to note that the RBA have considered what lessons can be drawn for Australia by looking at the experience of other Central Banks in the US, Japan and Europe that have adopted various methods of deploying monetary stimulus beyond rate cuts.

In contrast to where central banks see the state of their economies in terms of trying to stimulate growth, global markets are surging again after a short correction post the Brexit vote and asset price growth continues unabated as investors continue to chase yield.

This state of affairs does make the decision to invest in quality Australian residential property assets a far more reassuring one, especially when borrowing in AUD to fund these purchases.
We need to remain focussed on what the research can show us and not chase assets that have seen too much short term price appreciation in this cycle.

Always remember not to lose sight of the fundamentals as that will reduce the chances of making the sort of mistakes that many investors tend to make.

Let’s see what Tuesday brings us !

Best Regards,
Dr Andrew Unterweger MBBS, CFP®, Dip FP,FPA, AFA, SMSF
Chairman


bloomberg

Aussie Inflation Delivers RBA Smoldering, Not Smoking Rate Gun  The gasps following the previous inflation release were absent this time. Consumer-price growth in Australia remained subdued in the second quarter, but not as weak as some economists feared. And it didn’t suggest the country was being dragged even further into the disinflation vortex. So while most economists are sticking to their prediction the Reserve Bank of Australia will cut interest rates in six days’ time, the couple who changed their calls presented compelling cases for doing so… Read more


RBA’s sober assessment of the labour market and housing: Westpac’s Bill Evans 

The minutes of the July monetary policy meeting of the Reserve Bank Board confirmed the importance of next week’s June Quarter inflation report. The key sentences in the concluding paragraph of the “Considerations for Monetary Policy” section state: “The Board noted that further information on inflationary pressures, the labour market and housing market activity would be available over the following month and that the staff would provide an update of their forecasts .. Read more

Australia’s Central Bank Would Mix Stimulus Tools in Extreme
Scenario

Australia’s central bank has studied the examples of unorthodox policy conducted by its peers, and would favor a multi-pronged stimulus if economic conditions unexpectedly deteriorated to the point where it had to head into uncharted territory.The Reserve Bank of Australia currently still has room for traditional interest-rate cuts, with its benchmark at 1.75 percent. However, economists anticipate another reduction as soon as next month, and Deputy Governor Philip Lowe — who will take the RBA’s helm in September — has indicated that lowering the rate on its own would lose effectiveness as it approaches 1 percent..  Read more

Focus Shifts to AUD/USD Amid Bets for RBA Rate-Cut
Talking Points:
– AUD/USD Preserves Near-Term Bullish Formation Ahead of RBA Rate-Decision.
– USDOLLAR Extends Losses as 2Q GDP Report Disappoints.
  • Even though AUD/USD largely preserves the upward trend carried over from the end of May, the near-term outlook remains clouded amid the divergence in the Relative Strength Index (RSI); need a break of the bearish formation in the oscillator to favor a larger advance in the exchange rate.    Read more
Headline inflation at weakest annual pace in 17 years

Headline inflation has unexpectedly slowed to the weakest pace in 17 years, ramping up speculation the Reserve Bank of Australia will cut the official cash rate to 1.5 per cent next week.

The consumer price index rose 0.4 per cent in the June quarter from the previous three months, and 1 per cent from the same period a year earlier, the Australian Bureau of Statistics said on Wednesday. Economists surveyed by Bloomberg News had forecast inflation of 0.4 per cent and 1.1 per cent.More importantly, measures of so-called core inflation that are closely watched by the Reserve Bank showed price weakness continues to be soft, exacerbated by the lowest wages growth on record, the ongoing deflationary impulse of a sluggish global economy, and a lack of pricing power by retailers in.. Read more


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