The Reserve Bank of Australia (RBA) will take a break until the first Tuesday in February. With a festive season break spanning over 8-weeks, it was felt that now was the right time to reflect on RBA decisions that occurred during 2013, and why these were made. Let’s look at what occurred during 2013.
February 2013 to April 2013
- The official cash rate remained on hold at 3 percent.
- Global growth remained steady despite Europe being in a recession.
- Inflation stayed at 2 percent.
- Capital spending increased in the resource sector, but weakened in other areas.
- Dwelling investment slowly increased along with home prices and rental yields.
- The Australian dollar remained higher than expected and this prompted change in May of 2013.
- The RBA reduced the official cash rate by 25 basis points to 2.75 percent. This was due to the growing rate of unemployment and an inflation rate of 2 percent, along with high dollar rates.
- The U.S, China and Japan announced strengthening growth, but the euro remained in recession.
June 2013 to July 2013
- The cash rate remained at 2.75 percent.
- Global growth was below average.
- Commodity prices declined when compare to peak levels. But, remained relatively high when compared to historical levels.
- Australia’s growth was below trend and unemployment remained higher.
- Inflation stabilised at a medium level.
- The Australian dollar depreciated, but remained higher than expected.
- The official cash rate was reduced by 25 basis points to 2.5 percent in order to stimulate consumer spending.
- Global growth remained consistent, along with unemployment and the economic growth of Australia.
- Decreases in interest rates supported spending and assest values, but borrowing rates remained subdued.
- The Australian dollar depreciated a further 5 percent, but was still considered too high.
September 2013 to December 2013
- The official cash rate remained at 2.5 percent.
- Commodity prices declined and global inflation, in most countries, was contained.
- Volitility increased in financial markets.
- Unemployment in Australia rose and borrowing continued to remain subdued.
- The Australian dollar rose slightly, but remained at 10 percent depreciation. This was considered too high to achieve an economic balance.
According to RBA forecasts, Gross Domestic Product (GDP) growth is expected to be between 2 to 3 percent in the first half of 2014, and will possibly rise to 2 to 3 percent in the 2nd half of the year. Consumer Price Index (CPI) inflation will be maintained at between 2 to 3 percent. Consumer confidence is expected to increase, but uncertainty is likely to remain due to policy changes made throughout the year. Unemployment is expected to rise in the first half of the year and possibly stabilise during the 2nd half.
Globally, Europe’s economy is predicted to remain fragile with gradual recovery in the later part of the year. The U.S economic front will remain uncertain due to fiscal policy needing to be resolved along with government spending.
On the home front, dwelling investment is likely to continue with steady rises in property prices and rental yields across the nation. Some areas will perform better than others. The official cash rate, which dictates to home loan interest rates, is expected to remain low in the first half of 2014, before it starts to move up. This, in turn, could see interest rates on home loans rise in the latter half of the year.
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Written by eChoice