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.
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