Backyard Cricket: The Reserve Bank pads up to re-enter the game…and the dollar rises.

So it seems the Reserve Bank hasn’t quite pulled up stumps yet. Widely published in yesterday’s media, a comment from The Reserve Bank minutes has been blown out of proportion.

With the current cash rate at 1.5%, The Reserve Bank is quoted as saying that a cash rate of 3.5% is the “new Neutral”. The media’s take on this is that rates are going up… And the crowd goes wild! Hang on, that’s right, it’s just more noise.

Previously the Reserve Bank had considered 5.0% as “Neutral”, so by re-evaluating this ‘middle line’ of the economy at 3.5% instead, the Reserve Bank is simply signalling that the peak of the next rate cycle is now predicted to be around 1.5% lower than the previous cycle.

No comment was made however, as to when any moves towards this new “middle line” will be made. Why? Because there are still other players in the game to consider. APRA and ASIC’s recent round of regulations and the government’s bank levy are still all in play.

The sooner the Reserve Bank comes into bat by adjusting the cash rate, the sooner the loadings imposed by regulators will fade. This is why investors should just sit tight while this plays out.

And finally, in response to all the media noise, the Australian dollar has jumped.  Online shopping just got cheaper again, and that overseas trip might be back on the cards!

In relation to your home loan your response should be to:

·       Calculate and start paying your loan NOW as if the rate was already 6%pa

·       Let your budget adjust and let any surplus go into your loan as possible redraw for a “rainy day”

And as always you can call or email me anytime, it’s what I’m here for…

 

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