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At its meeting today, the Board decided to leave the cash rate unchanged at 4.75%. The higher prices for our commodities mainly iron and coal is ensuring that the Australian economy is continuing to grow and is helping to insulate us from the downturns that other western nations are suffering at present.
Sovereign debt is continuing to hold up recovery for most European countries with Greece, Ireland and Portugal relying on support from their fellow EU members to continue to trade.
In the US consumer confidence is extremely low with most people believing that the market will continue to fall for some time yet.
One downside to the growth that Australia is achieving is that it is creating inflationary pressures on the domestic market and will undoubtedly lead to further interest rate rises later this year.
It is unlikely that the price increases caused by the floods and cyclones will effect inflation. Nor will increase in statutory charges such as water and electricity.
The Reserve Bank realises that these are not demand driven increases and in fact they effectively act in the same way that an increase in interest rates would. They effectively reduce the amount of spare cash that is available and thereby restrict people’s ability to over-spend.
The housing market continues to be restrained with people being careful about making the commitment to purchase their first home.
Whist there is some signs that the market is improving there is still a large number of properties on the market and the market is still very price conscious.
This is creating an ideal investors market. Less people buying property means more demand for rental housing. Less buyers also means lower prices for those properties that are currently on the market.
Investors tend to be more sophisticated in the property market and know that these downturns must recover and the greater the downturn the greater the recovery.
This is also an ideal market for those property owners who are seeking to upgrade.
The falls in property values tend to be greater in the higher price ranges than in the lower price ranges.
This means that whilst you may have to take less than you expected for your current property, your next property has been reduced by an even greater amount giving you an overall gain in the transaction.
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