ID :
86539
Wed, 10/28/2009 - 10:35
Auther :
Shortlink :
http://m.oananews.org//node/86539
The shortlink copeid
Rate rise expected whatever CPI outcome
(AAP) - Whatever the result of the consumer price index (CPI) on Wednesday, homeowners should be prepared for an official interest rate rise on Melbourne Cup day.
The latest readings of CPI and underlying inflation at 1130 AEDT will determine the
likely pace and size of interest rate increases by the Reserve Bank of Australia
(RBA) over coming months, economists say.
The RBA holds its next monthly board meeting on November 3.
"Even if (CPI) comes in on the low side they are still going to do 25 basis points
next week," Nomura Australian chief economist Stephen Roberts told AAP.
The RBA has made it clear that it feels that it would be "imprudent" to keep the
official cash rate at "emergency" low levels when the economy is in recovery.
It raised the cash rate to 3.25 per cent from 3.0 per cent early this month, and a
further 25 basis point increase would add another $45 to monthly repayments on an
average $300,000 mortgage.
Economists' forecasts centre on an annual CPI rate of just 1.2 per cent as of the
September quarter, remaining below the RBA's two to three per cent inflation target.
However, annual underlying inflation is expected to remain stubbornly high at 3.45
per cent.
While households consider the implications of rising interest rates on their major
asset, their second biggest investment - superannuation - is showing a slow recovery
after the shock of the global financial crisis.
A report by the Organisation for Economic Co-operation and Development (OECD) shows
that Australian super funds recovered 1.0 per cent in the first six months of 2009
after a drop of over 20 per cent in 2008.
This compares with an average 3.5 per cent recovery among pension funds across OECD
countries and returns of 10 per cent in Norway and Turkey.
"The impact of the crisis on investment returns has been greatest among pension
funds in the countries where equities represent over a third of total assets
invested," it said.
"In 2008, Australian pension funds were the most exposed to equities at 59 per cent
of total assets."
The Paris-based institution said funds in other countries benefited from having a
large proportion of their assets invested in bonds, whose rates of return tend to be
lower but more stable than those in equities.
Still, an analysis by Commonwealth Securities chief economist Craig James shows that
the value of the Australian share market has now risen by over $500 billion to $1.4
trillion since March.
"It has been a great rebound, but it was a humungous drop from the highs of late
2007 and we still have some work to do to prepare the damage to superannuation and
to wealth levels," Mr James told AAP.
"But certainly from all the developed share markets and economies, you would have
thought Australia was in the best position to claw its way back to those highs (of
late 2007)," he said.
The S&P/ASX 200 share index closed at 4,753.5 on Tuesday compared with around 6,800
in late 2007.
Australia is the biggest the beneficiary of China's industrialisation and has a
strong banking and corporate sector.
Mr James defended super funds' investment weighted towards shares.
"Over a long period of time domestic shares have outperformed other asset prices by
a very significant magnitude," he said.
"You could take short-term strategy and opt for safe haven bonds or cash, but really
that's not the strategy we advise for individual investors and it shouldn't be what
super funds take on either for the broader masses."
The latest readings of CPI and underlying inflation at 1130 AEDT will determine the
likely pace and size of interest rate increases by the Reserve Bank of Australia
(RBA) over coming months, economists say.
The RBA holds its next monthly board meeting on November 3.
"Even if (CPI) comes in on the low side they are still going to do 25 basis points
next week," Nomura Australian chief economist Stephen Roberts told AAP.
The RBA has made it clear that it feels that it would be "imprudent" to keep the
official cash rate at "emergency" low levels when the economy is in recovery.
It raised the cash rate to 3.25 per cent from 3.0 per cent early this month, and a
further 25 basis point increase would add another $45 to monthly repayments on an
average $300,000 mortgage.
Economists' forecasts centre on an annual CPI rate of just 1.2 per cent as of the
September quarter, remaining below the RBA's two to three per cent inflation target.
However, annual underlying inflation is expected to remain stubbornly high at 3.45
per cent.
While households consider the implications of rising interest rates on their major
asset, their second biggest investment - superannuation - is showing a slow recovery
after the shock of the global financial crisis.
A report by the Organisation for Economic Co-operation and Development (OECD) shows
that Australian super funds recovered 1.0 per cent in the first six months of 2009
after a drop of over 20 per cent in 2008.
This compares with an average 3.5 per cent recovery among pension funds across OECD
countries and returns of 10 per cent in Norway and Turkey.
"The impact of the crisis on investment returns has been greatest among pension
funds in the countries where equities represent over a third of total assets
invested," it said.
"In 2008, Australian pension funds were the most exposed to equities at 59 per cent
of total assets."
The Paris-based institution said funds in other countries benefited from having a
large proportion of their assets invested in bonds, whose rates of return tend to be
lower but more stable than those in equities.
Still, an analysis by Commonwealth Securities chief economist Craig James shows that
the value of the Australian share market has now risen by over $500 billion to $1.4
trillion since March.
"It has been a great rebound, but it was a humungous drop from the highs of late
2007 and we still have some work to do to prepare the damage to superannuation and
to wealth levels," Mr James told AAP.
"But certainly from all the developed share markets and economies, you would have
thought Australia was in the best position to claw its way back to those highs (of
late 2007)," he said.
The S&P/ASX 200 share index closed at 4,753.5 on Tuesday compared with around 6,800
in late 2007.
Australia is the biggest the beneficiary of China's industrialisation and has a
strong banking and corporate sector.
Mr James defended super funds' investment weighted towards shares.
"Over a long period of time domestic shares have outperformed other asset prices by
a very significant magnitude," he said.
"You could take short-term strategy and opt for safe haven bonds or cash, but really
that's not the strategy we advise for individual investors and it shouldn't be what
super funds take on either for the broader masses."
