Month in Review June 2014

By the resi financial blog team, 04 June 2014

Australia Financial review June 2014

The Reserve Bank of Australia has left rates on hold at 2.5 per cent for the ninth consecutive month. The last time the RBA moved on rates was in August 2013.

The stability in the economy means the decision to keep rates stable is not a surprise. The RBA said that the economy had been growing at a pace that was below trend but appears to have firmed around the start of 2014. It attributed this partly to strong increases in resources exports but also to the growth in consumer demand and a strong expansion in housing construction.

It remains unclear whether the changes announced in the recent federal budget will affect consumers’ confidence levels.

Housing prices have increased significantly over the past year but these have moderated recently. While the strength of the Australian dollar has been a concern over the past year, a decline earlier in the year is helping to achieve balanced growth in the economy. However, the Aussie dollar has strengthened of late and remains high by historical standards.

RBA governor Glenn Stevens says unemployment remains high and is expected to stay at these levels for some time. “There has been some improvement in indicators for the labour market in recent months but it will probably be some time yet before unemployment declines consistently,” he said. “Recent data confirm that growth in wages has declined noticeably. If these and other domestic costs remain contained, inflation should remain consistent with the target over the next one to two years, even with lower levels of the exchange rate."

The low rates are continuing to affect savers who are seeking higher returns than the levels offered on traditional safe products such as term deposits.

Recent news regarding falls in property values is likely to make it easier for the RBA to keep rates at their low levels in order to stimulate housing construction and consumer spending.

However, despite the news of price falls around property, the next move for interest rates is still expected to be up, so potential property purchasers should not be waiting for prices to fall before buying as the expected higher rates may not offset the cheaper prices.








Categories: Month in review, RBA