INTEREST RATE OUTLOOK

RBA HOLDS AT 5.5%
The Board of the Reserve Bank of Australia at its last meeting has held the basic cash interest rate at 5.5 percent for what is now 12 months. They made no comment on the state of the economy in today’s statement.

OVERVIEW OF THE ECONOMY
In the lead up to the interest rates announcement, the RBA indicated interest rates could be held for many months and cited the flood of cheap consumer goods could help shackle inflation.

They said that while the economy is generally good, they are concerned about exports being “very limited” due to falling shipments of rural products, tourism earnings are flat and the outlook for manufacturers is pessimistic.

ECONOMY SLOWING
Many indicators are now pointing to the economy coming off the boil its held for the past few years, the most significant being GDP growing by only 0.5 percent in the last quarter. Against that, business investment is still holding up as Dunn & Bradstreet’s latest business confidence survey shows it has bounced back, productivity is on a 5 year high and private spending recorded a 1.1 percent gain in the last quarter.

Retail sales figures have just recorded the biggest lift since June of last year. However, the biggest downside is overseas debt has increased to $473 billion with the country’s trading deficit now standing at 6 percent of GDP.

CORPORATE PROFITS CONTINUE
The recent run of corporate profit announcements has been given an overall healthy vote by the market. It all adds up to the economy being on track for above 3 percent growth. But questions are now being asked about sustainability due to the growth base being relatively narrow. This is reflected in the way the main Stock Exchange index has stalled around the 4800 mark for the last couple of months despite its previous rapid growth.

HOUSING CONFIDENCE
Despite a recent slowdown, national house prices appear to be back on the rise. Statistics show they are now rising at the fastest rate for 2 years with even Sydney gaining ground. A worrying factor is the way Brisbane and Perth prices are showing all the signs of a classic bubble due to the commodities boom with the WA capital gaining nearly 20 percent in the past year.

In new housing, the last 7 quarters has seen 6 quarters with a downturn with the latest quarter showing a 2 percent fall.

HOUSING AFFORDABILITY
A recent national survey on household expenditure for families with mortgages found that despite the publicity it receives the high price of petrol rates only 5th most worrying with interest rates seen as the most important. A surprising 50 percent said they had refinanced their mortgages in the past 5 years.

PETROL DOWNTURN
An odd but interesting piece of data is the fact that spending on petrol has encountered its biggest downturn ever with an 8 percent fall. Clearly motorists have both cut back on car usage and are buying smaller cars.

To unsubscribe to this publication email us us at oxford@oxfordfunding.com.au.
We respect your right to privacy, and direct you to our Privacy Policy which describes
how we manage this information.