Home owners and property investors had much to celebrate over Christmas and the New Year as the Reserve Bank started slashing interest rates in the wake of a gloomy global financial outlook.
BY ROLF SCHAEFER
Many economists tipped a round of rate cuts were likely throughout the coming year, with the RBA (Reserve Bank of Australia) expected to take precautionary measures and ensure Australia could weather Europe’s continuing financial instability.
General consensus was that we were sitting pretty, as the RBA had conservatively maintained rates at a level whereby they had room to move should they feel the need to reduce the cash rate in order to keep our economy motoring steadily in spite of what was happening overseas.
As we all know by now however, things can change dramatically (and seemingly overnight) in the world of interest rates. And once again, economists are taking another peek into their crystal balls and rethinking their predictions for the remainder of 2012.
Then of course there are the banks. Not content to play follow the leader and wait for the central bank to make a move before making their own, the big four are now taking it upon themselves to determine whether or not customers will pay more or less on their mortgages each month, claiming the burden of the increased cost of funding as the reason for their sudden move to emancipate.
All of this uncertainty is giving property owners and investors the jitters as they nervously await each month’s announcement from, not only the RBA, but now their own bank as well, as to which way the cards will fall.
Most agree that one thing is highly unlikely right now, and that’s an increase in official rates from the RBA any time soon.
So why didn’t they cut rates in February? Quite simply, despite all of the gloomy global economic sentiment in the ether, they just don’t see Australia as being in dire straits right now. And that’s a good thing for us!
In fact the general feeling among economists is that 2012 could shape up to be a far better year than 2011, with most of the news we’ve received from abroad thus far being somewhat more assuring.
The US is quickly regaining command of its once sinking ship and even world share markets are looking up. Then there’s Europe, which while not completely out of danger, has calmed considerably.
Nevertheless, Europe is the big wild card that the Reserve Bank remains concerned about, suggesting that the continuing risk of the EU markets deteriorating further is the greatest single reason they could cut rates again this year.
Locally, while media hype surrounding Australia’s ailing manufacturing and retail sectors is no doubt causing many to question just how robust our economy really is, the reality is that we’re still doing quite nicely. In fact if anything, the Australian economy is actually showing signs of picking up pace.
Our nation is recovering from last year’s catastrophic weather events, our economy has been trending at the accepted average annual rate of 3.25 per cent for the past two years and a similar rate of growth is anticipated for 2012.
In other words, the Reserve Bank is pretty comfortable in its current position, holding interest rates at what is essentially their own trend rate, and waiting to see what happens as the European crisis plays out.
As always for the RBA, maintaining Australia’s economic status quo is a juggling act that has no clear-cut right or wrong answer, just a whole lot of grey areas.
Right now, they’re balancing two opposing forces being our single biggest resources boom in history and on the other side, the strength of the Aussie dollar on the global stage that’s reducing our price competitiveness in terms of international trade.
Currently the scales are fairly evenly balanced, thus giving the RBA that little bit of breathing space to hold steady on interest rates.
However, should things start tipping toward higher unemployment figures and a general economic contraction due to the high exchange rate, it’s likely another rate cut will be on the cards.
All we can do is wait, watch and see what happens next. No doubt many will be nervously anticipating the Reserve Bank’s next move when they meet in a few days as an indictor of how Australia’s economy is performing. Watch this space!
Rolf Schaefer has a wealth of knowledge about property investment, property finance and complex structures. His ‘can do’ approach has helped many property investors through the finance maze. Rolf has rated among the top Australian Mortgage Brokers for the past five years. For more information about Rolf visit www.metropolefinance.com.au.