Why The RBA Held Fast on Interest Rates … And How That Affects Commercial Property Investors

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Interest rates on holdSOME PUNDITS seemed to be genuinely confused, and others even disappointed with?the RBA’s decision at its last meeting.

However, those closely studying what’s really been happening over the past 6 to 9 months were not surprised in the slightest.

Producer Price IndexSure, a weaker Producer Price index (and a benign underlying inflation at 2.3%) certainly gave the RBA plenty of flexibility.

However …

Last week’s announcement that the Commodity Price index rose again in January — for the 3rd month in a row — was driven mainly by iron ore, now at $146 a tonne.

And projections are for Australia’s growth to remain solid … despite Gillard’s early announcement of an election, in September.

Given that China’s annual growth is now back around 8% (and likely reach 8.6% this year )… many forecasters now believe mining sector growth will continue, at least into 2014.

Furthermore, you have seen house prices jump sharply around Australia during January. Although not evenly spread, the average gain recorded was 1.2% … according to RP Data.

This has been as a direct result of the RBA’s series of rate reductions, up to the latest one in December last year — which was recorded in its minutes as being a “close call”.

A while back, our jobless rate was projected to blow out to 8%; but in fact, only breached 6%. And that has since hovered around 5.5%, for the past two years.

Looking ahead …

During 2012, Australia’s labour productivity actually improved — which helped contain wage costs, and reduce pressure on inflation. However, if productivity falters as the economy improves, the spectre of inflation will soon reappear.

And the RBA will then be forced to increased interest rates once again.

At the moment, Westpac’s Bill Evans seems to be a lone voice predicting any further cut in rates, to 2.75%. But IF that were to actually happen …

  • it won’t occur until May, and
  • will definitely be the last cut …

… based upon the current economic improvement, both here and overseas.

Bottom Line: In 6 months’ time, you will probably look back on Nov/Dec 2012 as the low point in Australia’s interest rate cycle.

Moreover, you’ll sorely regret not purchasing that Commercial property you were dithering over. And also regret having not locked in a rather attractive fixed-interest rate, for 3 to 5 years.

As having been flagged in a number of previous articles … all the signs were already there for you in plain view.

 

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