The Month in Review June 2014

The Month in Review June 2014

The Australian Economy.    Compiled by Mark Heinrich for Yong Real Estate

The Cash Rate (Interest Rate) is predicted to stay the same for July.

In the RBA Board meeting for June 2014 commented that despite the growing caution in the RBA's commentary, there was little change in its stance to keep rates on hold for some time. The line 「the Board judged that the current accommodative stance of policy was likely to be appropriate for some time yet」 was reiterated. 

The next move from the Reserve Bank is still likely to be a rate hike, but the 「period of stability in interest rates」 should last for a while longer. St George Bank expects the RBA to start raising rates in the first quarter of next year. The economic recovery in Australia remains intact, but some uncertainties are starting to rise. Risks to the outlook include the pessimism among consumers, especially after the Federal Budget, the paring back of housing activity, the still relatively high AUD and slower global growth. 

These downside risks to the economy suggest it may take longer for the recovery to build momentum and consequently a rate hike may then be some way off. 

The long-held view (in place since October 2013) has been that rates would remain low at 2.50% for some time and the next move in the cash rate would be up near the end of this year. The Reserve Bank last changed the cash rate on the 6th of August 2013, with a cut of 25bp to take the cash rate to a record low of 2.50%. 

Any move in rates will likely be a rate hike because the threshold for further easing is still high, inflation has moved in the upper part of the Reserve Bank's target band and economic growth has improved since turning a corner around September of last year. 

However, it is reasonable to expect the tightening cycle (rate increases) to start in the early part of next year, rather than the later part this year. While the economy remains in recovery, we have the view the recovery may take longer to build momentum. The Australian economy continues to adjust to the decline in mining investment and the outlook depends on the successful transition from mining investment growth to growth in non-mining. 

Mining investment is set to fall sharply in 2014-15 and surveys suggest a pick-up in non-mining investment will occur, but this pick-up is still modest in nature and uncertainty about the outlook for non-mining investment remains. 

The key gauge of consumer sentiment revealed that consumers were feeling pessimistic about the outlook heading into the Federal Budget. In the wake of the Budget, consumer sentiment fell 6.8% and very little of this drop was recovered in the subsequent survey taken in June. 

Low interest rates continue to be a fundamental pillar of support to the economy. Low interest rates are keeping financial conditions easy and supporting an ongoing recovery in the economy. 

Source: St George Bank and RPData - Rismark

Please click on the links below to see the full economic reports on the economy and the Housing Market for June 2014 and [Check Out] our monthly explanation of [Commonly Used] Economic Terms to help you better understand economic reports.