An extended period of low interest rates ahead

The Reserve Bank has left the cash rate at a record low of 1.00%. The Reserve Bank previously cut rates in both June and July, each time by 25 basis points.

WHAT HAS CHANGED SINCE THE LAST MEETING?

  • The US-China trade war has intensified.
  • The International Monetary Fund revised its 2019 estimate for global growth from 3.3% to 3.2%.
  • The US Federal Reserve cut the federal funds rate by 25 basis points.
  • The Australian jobless rate was steady at 5.2% in June.
  • Job ads rose 0.8% in July after a 4.6% increase in June (the biggest monthly gain in 18 months).
  • Capital city home prices rose by 0.1% in July – the biggest rise in almost two years.
  • Private sector credit rose by just 0.1% in June. Annual credit growth is 3.3% – a 5½-year low.
  • Retail trade rose by 0.4% in June.
  • In real terms retail trade rose 0.2% in the June quarter after falling 0.1% in the March quarter.
  • The Consumer Price Index rose 0.6% in the June quarter to be up 1.6% on the year.
  • Both the All Ordinaries and ASX200 share indexes hit record highs.
  • The Australian dollar has held around US67-69 cents.

The Reserve Bank hopes it has done enough so it is not called on to cut rates again. But the Bank has made it clear that even if rates aren’t cut, that rates will stay low for an “extended period”.

The Reserve Bank had previously lifted rates seven times from October 2009 to November 2010 from 3.00% to 4.75%.

At the same time, share markets have become more volatile given the trade war between the US and China so investors will need to be vigilant.

Returns on shares and property still look to outperform other assets classes. But diversification is important in the current environment as is the need to maintain a defensive cash component in portfolios.

*source Property Observer

Posted in Latest news, News on 9th August, 2019