Industry suggestions that the cash rate should be lower are self-serving: Robert Simeon

At the beginning of 2013, some were predicting that the cash rate would drop to around 2% – I remained in the school of thought that it won’t go below 3%.

The gallery remains divided although one can’t help but notice that the cash rate setting is the monetary policy indicator as to the overall health of our economy.

Retail and real estate suggestions that it must be lower are, in my opinion, self-serving.

The TG Securities Melbourne Institute Monthly Inflation Gauge increased by 0.2% in March for a 2.1% annual pace which just so happens to be the lowest annual inflation result for eight months.

Australia as a nation has many economic problems with Australian Industry Group chief executive Innes Wilcox commenting: “The strong dollar, falling selling prices, further cost pressures and the weakness of commercial and residential construction continue to take their toll.”

The head of Australia’s peak business group has urged the federal government to invest more in infrastructure, even if it means borrowing for top–priority projects. The only problem is that the federal government has been handing out money to buy the votes of the Independent federal MP’s win $1.5 billion for their electorates.

The Reserve Bank of Australia is responsible for monetary policy not fiscal policy where it should be remembered that in Australia we have approximately one third who rent, one third who own a house with a mortgage and the final third own their house with no mortgage. A difficult balancing act given two thirds would much prefer a higher cash rate with one third relying on a lower cash rate.

I don’t concur with the thought bubble ‘We are in an up cycle now’: property agents rejoice as good news rolls inwith RP Data figures showing that dwelling values (houses and apartments combined) across Australia’s capital cities increased by 2.8% thus far in 2013.

Of course prices should be climbing due to a record low cash rate together with Australia’s population growing by 1.7% in the year to September 2012 which is the highest annual recorded rate since December 2009; this is above the 30-year average of 1.4% according to the Australian Bureau of Statistics.

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Mergers at eight – year low previously the resources sector led this demographic market which now appears to be slowing down. Last year Australian companies were involved in 1,037 deals worth $US65.46 billion, a marked decline from 2007, in the peak of the equities boom. In that year, companies locked in $214.7 billion in mergers and acquisitions in 2,267 deals.

 


This resonates through Australian homebuyer confidence hits lowest since 2008 – while Australian employers added the most jobs in almost 13 years in February and the economy expanded 3.6% in 2012, business confidence and home–loan approvals declined, illustrating continuing concerns about the nation’s economic outlook. These results are more evident in the suburbs that previously relied on high investment bank participation – which is obviously the missing link today.

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I’m a huge fan of Warwick J. McKibbin, who recently posted Poor economic policy must end no matter who wins Australian election – an excellent critique of the Australian economy since 2007:

“Key to improving Australia’s performance will be the move away from populist short – term policy along a path of structural reform that increases the flexibility of the Australian economy. Large investments in infrastructure and efficient pricing of congestion and other problems are needed to drive productivity growth. These investments should be based on independent assessment of the economic returns and not the political returns to marginal seats or the lobbying of vested interests. The Productivity Commission is critical to this process. Most urgently there is need for comprehensive review of current government spending programs and measures to reform the tax system. Australia desperately needs the next prime minister to be a leader rather than one who is a fighter.”

Hear, hear!

Robert Simeon is a director of Richardson  Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. He has also been writing real estate blog Virtual Realty News since 2000. The RWM real estate model has sold in excess of $1 billion in database sales globally.

 

 


Robert Simeon

Robert Simeon

Robert Simeon is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. He has also been writing real estate blog Virtual Realty News since 2000.

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