Last week the Reserve Bank of Australia (RBA) made the decision at it’s monthly board meeting to leave the official cash rate on hold. That means no adjustment to interest rates this month.

But Did The RBA Get It Wrong?

It will be interesting to watch what they do with interest rates in the months ahead. Their actions will be an indication of whether this months decision to leave rates on hold was the right one or not.

At the beginning of 2008 the RBA put interest rates up twice. At the time the opposition argued that the decision to do so was wrong and a reaction to Kevin Rudd & Wayne Swan talking up inflation; citing it as the # 1 enemy to go after. What they failed to recognise was that the negative economic impact coming out of the USA had already begun to work its way through the system and here in Australia the economic slowdown was just about to bite.

The numerous interest rate cuts later in the year is clear evidence that monetary policy in the early part of 2008 was wrong.

As it turns out, 2008 was not a year where inflation was our major concern. In fact, before the year was out the global slowdown put an end to inflation as global demand for goods and services fell away and prices began collapsing.

Nick’s Opinion

Personally I think:

• Our economy still lacks the overall business and consumer confidence needed to see things turn around
• Banks are still being very difficult to deal with when it comes to businesses wanting to borrow money etc
• That the next round of federal government handouts (the stimulus package) will not have as potent a short term impact as expected or needed
• Unemployment continues to be the worrying issue and unless small business gets some relief the negative employment trend will not be arrested

It’s just an opinion and I may be wrong, but for reasons including those above, I expect we will see further cuts to interest rates. I also see justification for the extent of further rate cuts to go further than most economists are currently predicting.

The question: “Did the Reserve Bank get it wrong in March when they left interest rates on hold” draws a divided response; and only time will tell.

The RBA’s decision to leave interest rates on hold this month was either (1) A positive vote of confidence in the Australian economy, or (2) A mistake… that will be corrected in the months to come.

Outlook For Property Investors

Current conditions are actually ideal for investors… regardless of whether or not the RBA moves on rates further.

• Property can be purchased at fantastic prices; most, if not all, developers could be classed as “motivated vendors” right now
• Interest rates are the lowest they have been in our lifetime
• Australia is in the midst of a massive housing shortfall

For anyone with a job, the current climate should be as easy as it is likely to ever get… when it comes to creating wealth! Don’t let this open door close before you act!

Happy Investing,

Nick Lockhart
mrd Customer Care Program… because investing is personal

Finance Structure & Cash Flow Health Check

Prevention is better than cure. A complimentary, no obligation Finance Structure & Cash Flow Health Check may save you (literally) tens of thousands of dollars, see the mortgage on your home cleared quicker and open up opportunities that would otherwise have passed you by.

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Case studies of other mrd clients that have undertaken a financial health check:

http://investmentmentor.com.au/2009/02/20/property-investor-crash-victims/