Business News

No rate rise in February

| More

by Peter Switzer

Just when the experts were telling us that the Reserve Bank wouldn’t raise interest rates in February — poof! — like in the smoke of a magic trick, these prophecies have disappeared.

And it’s the same ‘experts’ now predicting a rise!

Now, I can’t read the minds of the Reserve Bank board, but they are smart people and my bet is that their brains will prevail on the first Tuesday in February when they meet to decide the fate of the home loan customers of the country.

The matter should be determined on economic readings and so here’s a summary of the good and the bad news they should consider.

The good

Here’s the good stuff so far:

New car sales rose to 20-month highs and were up for the third straight month.
Car affordability is the best in 34 years and will get even better with the 1 January cut in import tariffs.
Dwelling approvals are up 33 per cent on a year ago – the strongest rise in 7.5 years.
Retail spending rose by 1.4 per cent in November.
Job advertisements continued to soar in December. Over the past two months, we have seen the biggest gains in 31 months.
Employment rose by 35,200 in December to record highs with full-time jobs up 7,300 and part-time jobs up 27,900. Economists had tipped a 10,000 lift in jobs.
The unemployment rate fell from 5.6 per cent to 5.5 per cent in December.
Total new lending commitments (housing, personal, commercial and lease finance) rose by 1.1 per cent in November. In annual terms lending is up 5.1 per cent on a year ago.
In annual terms investment loans are now 26.1 per cent higher than a year ago – marking the best reading in over two years.
The Roy Morgan Consumer confidence reading has lifted to a near five-year high and is now the second highest in the 37-year history.

The negative

Now, let's look at the negative news:

Sales of newly-built houses and apartments rose by just 0.3 per cent in November after falling by six per cent in October.
The Performance of Manufacturing index fell for the third straight month, easing from 51.2 to a five month low of 48.5 in December.
The Performance of Services index eased 2.5 points to a reading of 50 in December, which means the sector is neither expanding nor contracting.
Lending for new homes eased in November as first homebuyers exited the market. Construction loans fell by 6.5 per cent while the value of all loans fell by 1.6 per cent in the month.
The tourist deficit (the gap between tourist arrivals and departures) is the second biggest in the 34-year history of the series behind the July 2009 record shortfall.
The Aussie dollar is at 92.80 US cents, and a higher dollar does not help our exporters, especially the tourism sector.

Good outweighs bad

To be objective, the good outweighs the bad, but interest rates are rising already and government stimulus aimed at boosting car and home sales has been withdrawn or scaled back.

We also know that the RBA rose rates in December by 0.25 per cent, but the Big Four banks, except NAB, raised by a larger amount. Many of us have already been given the February rise already.

Also, both readings on the services and the manufacturing sectors above are hardly telling us that we’re off to the races. Sure, the outlook looks good but that’s an educated guess — the story for the here and now is that services, manufacturing and building are not going gangbusters.

Correction on the way?

Finally, US earnings season hots up this week and while I am positive they will please the market, you never know in the crazy world of money. Many strategists on Wall Street are tipping a big correction and while they could be wrong — and I think they will be — it’s too early to be too cocky.

That’s why the RBA should hold fire in February.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Published on: Monday, January 18, 2010