Why November?

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Most people seemed taken by surprise, when the RBA chose to raise the cash rate to 4.75% on Cup Day this week.

However, with Oaks Day being held yesterday, I thought today would be better timing for this post.

Price Pressures

Price Pressures

Sure, the September quarter CPI had fallen to within the RBA’s target range. And yes, there is still some uncertainty overseas.

However, with industry facing capacity constraints and the mining boom heading towards previous levels … inflation is poised to accelerate during the December quarter, as wages start to rise.

Just the other day, TD Securities’ senior strategist Annette Beacher predicted:
Red-3lines

This pickup in price pressure in October and hints that inflation in the September quarter could prove to be the low point in this cycle.

As you will appreciate, any increase in interest rates tends to have a delayed effect. So, the RBA have decided to be proactive — rather than play catch-up, once inflation begins climbing again.

By waiting until February, inflation could then be getting out of hand. And to raise rates in December would clearly dampen the spirit of Christmas. Therefore, November was clearly the best choice.

Besides, the RBA needed to regain the initiative — instead of allowing the market to second-guess its next move on rates.

Reading between the lines, there is still an upward bias on interest rates looking forward. And don’t be surprised to see the cash rate at 5.5% by this time next year — with Commercial mortgage rates some 3.5% to 4% higher again.

h2. For Commercial Property Investors

Higher rates may well affect Retail property, by reining in consumer spending. But they have had little effect, historically, upon the Office market — which ebbs and flows with the longer-term cycle of Supply & Demand.

As such, you ought focus your attention on the Office sector.

And be looking to fix your interest rate for as long as you can … as soon as you can! Because, you only have a small window of opportunity left to do that.

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