After a wait-and-see approach, RBA considered the current economic data, and has decided to hold the official cash rate at 1.5%. It could be because lenders continue with their out of cycle rate increases, and there’s still the possibility that the new bank levy will be passed on to customers.
Based on the economic data, inflation is outpacing wage growth despite its increase and it is still within the bottom end of the RBA target range. One in five Australians either do not have a job, or have a job but want more of it. Casual and part-time work are starting to be the norm and not full time employment.
Australians have been living off debt, which is consumption brought forward. Growth assumes that consumption will increase as well. Consumer confidence is falling in terms of future economic conditions and personal finances while Sydney and Melbourne are close to a housing bubble. Interest rates are transparent tools and the RBA board is focused on Sydney and Melbourne. Because of all these, the cash rate remains on hold.
The Australian dollar may fall sharply by about 60 cents against the US dollar if the US Fed continues to raise interest rates. It could affect Australia’s inflation rate and lift the rate of price escalation. If this goes beyond 3% per annum, RBA could lift the cash rate. The cash rate is currently on hold but until when? The cost of money could rise anytime soon.
For more information about investments in Australia, contact a Chan & Naylor Specialist to discuss your particular circumstances.
If you like what you are reading, subscribe to our newsletters now at www.chan-naylor.com.au
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.
Photo credit: Flickr