Premium Finance Services

At Premium Finance Services we specialise in the structure and restructure of debt to help our clients reduce bad debt and use good debt to create wealth. The use of debt to improve our client’s financial position relies on being able to structure finances so that they are worry free, hassle free and risk free and this requires an understanding of interest rates and their likely future direction.
Like most other in the financial services industry Premium Finance Services believes that interest rates are likely to move up – but when will this occur and what are the triggers?
Many economist believe it is the labour market, and not the housing market, will be the key to the next interest rate rise.
So this raises the question: if the RBA doesn’t have to raise rates earlier, then why would they? The labour market is important here and currently some weakness is still expected. Further, the unemployment rate is still rising and will continue to do so. Given the benign outlook for inflation, it would seem the RBA is in a position to take the edge off this increase, by holding off on rate hikes for a few months. (You can be sure the government would be appreciative heading into an election year). The ANZ bank believes that, in the absence of a strong and sustained turnaround in the labour market, remains for the first hike to come early next year.
The ANZ bank notes that some commentators suggest the recent rise in house prices will be the catalyst (interestingly some former housing doomsayers have now converted to a housing bubble story). This seems unlikely in most regions because median prices have only now recovered to levels seen in 2008 and much of this rise has been driven by subsidised first homebuyers. From end-September the boost the FHOG is scaled back and by the end of December it will be gone. This will no doubt dampen what has been frenetic buyer demand going forward. Upgraders and investors will increasingly support market activity, yet price gains in the next six months are unlikely to match what has happened over the past sixth six months, largely solving any perceived problem for the RBA.
The two regions of strongest population growth in Australia, South East Queensland and Greater Melbourne, are expected to remain the strongest residential housing markets over the medium to long term.

Our clients at Premium Finance Services are often concerned about the impact changes in the economy will have on their financial position and more importantly their ability to improve their financial position in the future.
So When and what is normal Australian Economy? Dr Alex Joiner Economist from ANZ explains; -
The balance of risks in the economy seem relatively evenly poised and as such we think the RBA will only act in the next few months to increase interest rates if the economy outperforms current expectations.
Does the RBA need to raise rates this year?
The minutes from the RBA’s September meeting added no clarity to the debate around when the first hike on the way to a ‘normalised’ level of interest rates will take place. This “wait and see” approach would seem appropriate given the still elevated levels of uncertainty around the domestic and global economic recoveries over H2 2009. Further to our minds at the moment, the RBA still lacks a compelling reason to raise rates sooner, i.e. this year, rather than later. True, the “emergency” scenario is no longer in play but a repeat of H1 economic growth in H2 is nowhere near guaranteed.
A reason may still emerge for the RBA to act in coming months, yet most believe the Australian economy will post very moderate growth in the back half of this year. The balance of risks in the economy seem relatively evenly poised across many major sectors and we think the RBA will only act earlier if the economy continues to outperform current expectations. What will be key is whether sharp gains in confidence made in the first half of the year will translate into activity in the second.
Given the likelihood of very modest economic growth as the fragile economy recovers through the second half of this year, the labour market, retail sales and inflation are key indicators to the timing of the RBA’s first move to normalise official interest rates. We believe the inflation outlook buys the RBA a bit of time. A significantly negative output gap, decelerating wages growth and a relatively high Australian dollar should keep the current downward momentum in the annual rate of inflation in train. Modest economic growth this year and next, (that will be well below a potential rate around 3¼%p.a.) should do nothing to derail this expectation.

At Premium Finance Services we take into account the likely changes to interest rates and the economy in determining what strategies are most appropriate to our client’s financial goals.