Global and Australian Economy Update: October 2014

At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent. 

Global Economy:

Growth in the global economy is continuing at a moderate pace. China's growth has generally been in line with policymakers' objectives, though some data suggest a slowing in recent months. Weakening property markets there present a challenge in the near term. Commodity prices in historical terms remain high, but some of those important to Australia have declined further in recent months.

Volatility in some financial markets has picked up in recent weeks. Overall, however, financial conditions remain very accommodative. Long-term interest rates and risk spreads remain very low. Markets still appear to be attaching a low probability to any rise in global interest rates or other adverse event over the period ahead.

Australian Economy:

In Australia, most data are consistent with moderate growth in the economy. Resources sector investment spending is starting to decline significantly, while some other areas of private demand are seeing expansion, at varying rates. Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend for the next several quarters.

Labour market data have been unusually volatile of late. The Bank's assessment remains that although some forward indicators of employment have been firming this year, the labour market has a degree of spare capacity and it will probably be some time yet before unemployment declines consistently. Growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate.

Monetary policy :

Monetary policy remains accommodative. Interest rates are very low and have continued to edge lower over recent months as competition to lend has increased. Investors continue to look for higher returns in response to low rates on safe instruments. Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets. Dwelling prices have continued to rise over recent months.

The exchange rate has declined recently, in large part reflecting the strengthening US dollar, but remains high by historical standards, particularly given the further declines in key commodity prices in recent months. It is offering less assistance than would normally be expected in achieving balanced growth in the economy.

Looking ahead:

Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.

Ref: http://www.rba.gov.au/

Australian Economy Update: May 2014

Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.

Global Economy:

Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a better outcome this year, helped by firmer conditions in the advanced countries. China's growth appears to have slowed a little in early 2014 but remains generally in line with policymakers' objectives. Commodity prices in historical terms remain high, though some of those important to Australia have softened further of late.

Financial conditions overall remain very accommodative. Long-term interest rates and most risk spreads remain low. Equity and credit markets are well placed to provide adequate funding.

Australian Economy:

In Australia, the economy grew at a below-trend pace in 2013. Recent information suggests moderate growth is occurring in consumer demand and foreshadows a strong expansion in housing construction. Some indicators of business conditions and confidence have improved from a year ago and exports are rising. But at the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative, as firms wait for more evidence of improved conditions before committing to expansion plans. Public spending is scheduled to be subdued.

The demand for labour has been weak over the past year and, as a result, the rate of unemployment has risen somewhat. More recently, there has been some improvement in indicators for the labour market, but it will probably be some time yet before unemployment declines consistently. Growth in wages has declined noticeably and this has been reflected more clearly in the latest price data, which show a moderation in growth in prices for non-traded goods and services. As a result, inflation is consistent with the target. If domestic costs remain contained, that should continue to be the case over the next one to two years, even with lower levels of the exchange rate.

Monetary policy remains accommodative. Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments. Credit growth has picked up a little, while dwelling prices have increased significantly over the past year. The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months. The exchange rate remains high by historical standards.

Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.

Reference: http://www.rba.gov.au

Australian Super and REST Super insurance premiums to rise by 35%

Australian Super will substantially increase its death and total and permanent disablement (TPD) insurance premiums due to rising policy costs.

The 35% price hike is due to come in at the end of March and was confirmed by AustralianSuper group executive of membership Paul Schroder.

He told Financial Standard that the decision made due to the fact that policy costs had increased.

"Australia's super fund members have had access to relatively cheap insurance and are seeing premium prices rise across the board," Schroder said.

This price increase comes after AustralianSuper and REST lifted the cost of insurance to their members in the first half of last year.

The two super funds lifted the cost of insurance to their members increasing the cost of its death and total and permanent disablement cover by around 38%, while the cost of income protection cover will increased by 25%

Retail industry fund, REST increased the cost of its death cover by around 45%, with TPD increased by 30% and income protection increased by 3%.

To read a full story, http://www.financialstandard.com.au/news/view/38630370

If you have Australian Super or REST Super and wish to review your insurance options, contact us on www.fortunewealth.com.au.

Australian Economy Update: April 2014

Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.

Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a pick-up this year. The United States economy, while affected by adverse weather, continues its expansion and the euro area has begun a recovery from recession, albeit a fragile one. Japan has recorded a significant pick-up in growth. China's growth remains generally in line with policymakers' objectives, though it may have slowed a little in early 2014. Commodity prices have declined from their peaks but in historical terms remain high.

Financial conditions overall remain very accommodative. Long-term interest rates and most risk spreads remain low. Equity and credit markets are well placed to provide adequate funding, though for some emerging market countries conditions are considerably more challenging than they were a year ago.

In Australia, the economy grew at a below trend pace in 2013. Recent information suggests slightly firmer consumer demand over the summer and foreshadows a solid expansion in housing construction. Some indicators of business conditions and confidence have improved from a year ago and exports are rising. But at the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative, as firms wait for more evidence of improved conditions before committing to expansion plans. Public spending is scheduled to be subdued.

The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. It will probably rise a little further in the near term. Growth in wages has declined noticeably. If domestic costs remain contained, some moderation in the growth of prices for non-traded goods could be expected over time, which should keep inflation consistent with the target, even with lower levels of the exchange rate.

Monetary policy remains accommodative. Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments. Credit growth is slowly picking up. Dwelling prices have increased significantly over the past year. The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months. The exchange rate remains high by historical standards.

Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.

Reference: http://www.rba.gov.au

Australian Dollar hits 2014 high

The Australian dollar has reached a high for the year, buoyed by expectations of no more interest rate cuts in Australia and hopes Chinese authorities will move to stimulate the economy.

The dollar touched 91.58 US cents in the morning and is hovering near that level, despite a private survey suggesting growth in China's manufacturing sector had slowed to an eight-month low.

Traders are hoping this latest soft data could prompt China's government to take more steps to support growth in the world's second-biggest economy.

They were also awaiting a speech by Reserve Bank deputy governor Philip Lowe, after which he was asked if the dollar was "uncomfortably high" as it continues to hold above 90 US cents.

Dr Lowe said the dollar had declined and this was playing an important role in stabilising the economy.

It was the first of several public appearances by top RBA officials this week, where they would be offered the chance to talk the dollar down.

Westpac senior currency strategist Sean Callow says there are mixed indications from Chinese media as to how likely it is that China's government will introduce more stimulus measures.

"While the first quarter growth number in China's probably going to be a little bit slower, they do have lots of ammunition to make sure that growth doesn't slow down too far," Mr Callow said.

"So it may be a case of looser monetary policy, but perhaps more likely fiscal policy, where there is plenty of spending on infrastructure that is already planned in China in their five-year plan and could be brought forward."

Mr Callow says the currency has been supported by some recent strong domestic data on economic growth, employment and building approvals.

The good news has added to expectations that domestic interest rates will remain on hold, with the Reserve Bank repeatedly stating that "a period of stability" for rates is likely.

Reference: http://www.abc.net.au

RBA confident about economy

The Reserve Bank of Australia says the local economy is gaining strength thanks to the falling Australian dollar and the impact of previous interest rate cuts.

In the minutes of its February 4 board meeting, the RBA made it abundantly clear that it won't be cutting the cash rate in the coming months.

"If the economy evolved broadly as expected, the most prudent course would likely be a period of stability in interest rates," the RBA said in the minutes released on Tuesday.

In just over two years the RBA has made a series of reductions in the cash rate taking it to a record low of 2.5 per cent from 4.75 per cent in November 2011.

The minutes noted that the Australian dollar has fallen three per cent on average against other currencies in two months and is 15 per cent below its most recent peak in 2013.

"If sustained, a lower exchange rate would be expansionary for economic activity and assist in achieving balanced growth in the economy," the RBA said.

"The board had judged that given the substantial degree of monetary policy stimulus already in place, it was prudent to keep policy unchanged, while assessing the continuing impact of that stimulus."

Official figures released last week showed that the unemployment rate rose to six per cent in January, its highest for 10 years.

However the RBA appears to be unconcerned about any weakness in employment growth.

"Members recognised that conditions in the labour market tended to lag economic growth, and that the labour market had remained weak following a period of below-trend growth in activity," the RBA said.

"Forward looking indicators of labour demand, such as vacancies and job advertisements, had shown signs of stabilising in recent months but remained at low levels and were consistent with only moderate growth of employment in the months ahead.

"While weak conditions in the labour market had weighed on consumption growth, the increase in housing and equity prices over the past year raised the possibility that consumption growth could outpace that of income in the period ahead."

The RBA said economic growth will strengthen in 2014 but stay at a below trend pace and then increase to an above trend pace by mid 2016.

RBA last cut the cash rate by a quarter of a percentage point to a new record low of 2.5 per cent at its August 6 board meeting.

Ref source: http://au.finance.yahoo.com/news/rba-confident-economy-003420110.html