Posted on May 10, 2013 · Posted in Finance Blog

Well this  week caught just about all economic commentators by surprise with the RBA cutting rates by 0.25%. They probably shouldn’t have been so surprised given the markets were factoring in a 50/50 chance of a rate reduction.

The cut by the RBA was largely a “because we can” action. The economy grew at approximately trend throughout 2012 and consumer spending has recovered in the March quarter with consumer sentiment above its long-run average. The housing market is showing signs of improvement with auction clearance rates at, or above, their long-run averages and signs of increasing appetite for borrowing for housing. Unemployment increased slightly, however was a factor of growth in workforce participants outstripping growth in job creation rather than a reduction in jobs.

Business confidence and investment remains relatively subdued as the economy gradually transitions away from the mining industry towards non-mining industries such as construction and goods distribution.

There remains a lot of uncertainty as to how this transition will play out.

The RBA’s “because we can” action was a response to lower than expected inflation in the first quarter of 2013 leaving it scope to reduce rates in an effort to further kick along the economy. Well played I say.

It remains an excellent time to invest in property and/or upgrade your home with the property market looking like its bottomed, interest rates at historical lows, rental markets tight and a general undersupply of housing across the country.

The banks are forecasting 3 to 5% growth in the housing market over the next 12 months, however I suggest this may be a conservative estimate.

About the Author

Greg Samuel has worked in the finance industry for over 13 years. He has worked in Corporate, Commercial and Rural Banking and now uses his skills to help his clients as a finance consultant and broker.