Welcome to our September newsletter
Problems abroad are affecting consumer confidence in Australia, forcing the RBA to rethink its bullish stance on monetary policy.
What a difference a month makes.
This time last month, governor Glenn Stevens remained upbeat about the future and bullish about the current interest rate setting.
Speaking at an industry function in Sydney, Mr Stevens made it very clear that interest rates would have to go up in the near future.
Fast forward one month and that sense of optimism has now been all but erased from market rhetoric.
Standard & Poor’s downgraded the US credit rating from AAA to AA in an unprecedented blow to the world’s largest economy.
According to Standard & Poor’s, the credit cut was undertaken on the back of ongoing concerns about the government’s budget deficit and rising debt burden.
The action immediately raised borrowing costs and forced economists to consider the idea that America could actually fall back into a recession.
The uncertainty in the US was felt right across the Pacific, with Australian stocks falling sharply in the week after S&P’s decision.
And while the mining industry in Australia is still alive and well, AMP’s chief economist Shane Oliver says the boom is not big enough to offset the bust that’s happening abroad.
“The rest of the economy is struggling, and with recession risks rising in the US and Europe our assessment is that by year end the Reserve Bank will be moving to cut interest rates, probably starting with a 0.25 per cent cut as early as October,” he says.
Even the Commonwealth Bank of Australia, which recorded a 22 per cent surge in second half profit on the back of increased business and household lending, isn’t overly optimistic about the future.
"The 2011 financial year has been characterised by subdued system credit growth and intense competition,” CBA’s chief executive Ralph Norris says.
“At this stage, there is nothing to suggest that the 2012 financial year will see any material improvement."
So what does all this mean? Will the problems abroad force the RBA to bite the bullet and cut rates? Only time will tell.
If you’d like to discuss the current rate environment and how it might impact your mortgage please give me a call. With rates stable, and potentially falling, it is worthwhile assessing your current home loan to identify whether there’s a more appropriate product on the market.