Statement by Glenn Stevens, Governor: Monetary Policy Decision
Growth in the global economy has moderated this year after a strong performance in 2010. Some of the slowing reflected temporary factors, and as these passed, the pace of expansion in the United States and much of Asia began to pick up around mid year. China’s growth has been slowing, as policymakers there had intended. Trade in Asia is now, however, seeing some effects of a significant slowing in economic activity in Europe.

The sovereign credit and banking problems in Europe, to which European governments are still seeking to craft a full response, are likely to weigh on economic activity there over the period ahead. Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe. This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased. Commodity prices have reflected this, declining further over recent months and taking pressure off CPI inflation rates. This has increased the scope for some easing in monetary policy in a number of countries.

Information about the Australian economy suggests output growth has been close to trend, with demand growth stronger than that. The terms of trade have now peaked and will decline somewhat in the near term, but they remain very high. In response, investment in the resources sector is picking up very strongly, with much more to come. Some related service sectors are enjoying better-than-average conditions. In other sectors, changed behaviour by households and the high exchange rate have had a noticeable dampening effect. The unemployment rate has increased a little since mid year, though it remains close to 5 per cent.

CPI inflation on a year-ended basis remained above the target at the latest reading, due to the effects of weather events last summer, but is now starting to decline as production of key crops recovers. Moreover, with labour market conditions now softer, the likelihood of a significant acceleration in labour costs outside the resources and related sectors in the near term has lessened. Accordingly, the Bank’s current judgement is that inflation is likely to be consistent with the 2–3 per cent target in 2012 and 2013, abstracting from the impact of the carbon pricing scheme.

The reduction in the cash rate as a result of the Board’s previous decision flowed through to lending rates, which are now around their average level of the past 15 years. Short-term market interest rates have tended to decline a little further in recent weeks, though term funding conditions for financial institutions have become more difficult. Credit growth remains subdued and asset prices have declined further over recent months. The exchange rate has been quite variable over the past few months, but remains at an historically high level.

Overall, the Board concluded, on the basis of all the available information, that the inflation outlook afforded scope for a modest reduction in the cash rate. The Board will continue to set policy as needed to foster sustainable growth and low inflation over time.

If you have any questions about your current loan, please give us a call on (03) 9888 9292.

Statement by Glenn Stevens, Governor: Monetary Policy Decision

Whilst interest rate moves are being keenly watched by all we will continue to update you on the result of each RBA meeting. If you have any questions in general about interest rates, or would like to review your current finance & loan arrangements, please contact our office on (03) 9888 9292.

Statement by Glenn Stevens, Governor : Monetary Policy RBA

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 4.5 per cent, effective 2 November 2011.

Recent information is consistent with a moderation in the pace of global growth, though fears of a major downturn have not been borne out so far. The pace of US economic expansion picked up in the September quarter, but is still only moderate and leaves considerable spare capacity. China’s growth has slowed, as policymakers there had intended. Output in Asia has now recovered from the effects of the Japanese earthquake, and domestic demand in the region is generally expanding. Trade performance, however, is starting to see some effects of a significant slowing in economic activity in Europe, where the prospects are for economic weakness to continue. Commodity prices, while still at high levels, have generally declined over recent months.

Financial markets have recovered somewhat from the turmoil of recent months, helped by stronger economic data in the United States and by signs that European governments are making progress in their efforts to deal with the sovereign debt and banking problems. Equity markets have gained ground and the Australian dollar has risen significantly as risk aversion has lessened. But it is likely to be some time yet before concerns about the European situation can definitively be laid to rest and the effects of the recent turmoil on confidence may result in a period of precautionary behaviour by firms and households.

Information about the Australian economy suggests moderate growth overall. The terms of trade have now peaked and will decline somewhat in the near term, but they remain very high. In response, investment in the resources sector is picking up very strongly, with much more to come. Some related service sectors are enjoying better-than-average conditions. In other sectors, cautious behaviour by households and the high exchange rate have had a noticeable dampening effect. The unemployment rate has increased a little over recent months, though it remains close to 5 per cent.

After underlying inflation started to pick up in the first half of the year, recent information suggests the subdued demand conditions and the high exchange rate have contained inflation more recently, notwithstanding continuing sizeable increases in utilities charges. CPI inflation on a year-ended basis remains above the target, due to the effects of weather events last summer, but is now starting to decline as production of key crops recovers. Moreover, with labour market conditions now softer, the likelihood of a significant acceleration in labour costs outside the resources and related sectors in the near term has lessened. Accordingly, the Bank’s current judgement is that inflation is likely to be consistent with the 2–3 per cent target in 2012 and 2013, abstracting from the impact of the carbon pricing scheme.

Financial conditions have been easing somewhat recently, with market interest rates declining a little and competition to lend increasing. But overall conditions have remained tighter than normal, with borrowing rates still a little higher than average, credit growth subdued and asset prices lower than earlier in the year. The exchange rate has been very variable over the past few months, but on the whole has remained at historically high levels.

Over the past year, the Board has maintained a mildly restrictive stance of monetary policy, in view of its concerns about inflation. With overall growth moderate, inflation now likely to be close to target and confidence subdued outside the resources sector, the Board concluded that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2–3 per cent inflation over time.

Whilst interest rate moves are being keenly watched by all we will continue to update you on the result of each RBA meeting. If you have any questions in general about interest rates, or would like to review your current finance & loan arrangements, please contact our office on (03) 9888 9292.

Statement by Glenn Stevens, Governor Monetary Policy RBA

At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per cent.

Conditions in global financial markets have continued to be very unsettled, with uncertainty increasing about both the prospects for resolution of the sovereign debt and banking problems in Europe, and the outlook for global economic growth. While temporary impediments that had contributed to a slowing in growth in some countries over recent months are lessening, recent data suggest a continuing period of soft economic conditions in both Europe and the United States. Moreover, the uncertainty and financial volatility have reduced confidence, which could result in more cautious behaviour by firms and households in major countries.

It will take more time for evidence of any effects of the recent European and US financial turbulence on economic activity in other regions to emerge. Thus far, indications are that economic activity is continuing to expand in China and most of Asia. Nonetheless, recent events have led forecasters to reduce their estimates for global GDP growth, which is now expected to be about average this year and next. Prices for commodities have declined over recent weeks, though in general they remain high.

Australia’s terms of trade are very high, which has increased national income considerably. Investment in the resources sector is picking up very strongly and some related service sectors are enjoying better than average conditions. In other sectors, cautious behaviour by households and the earlier rise in the exchange rate have had a noticeable dampening effect. The impetus from earlier Australian Government spending programs is now also abating, as had been intended. While there remain good reasons to expect solid growth over the medium term, the indications are that the pace of near-term growth is unlikely to be as strong as earlier expected, due both to local and global factors, including the financial turmoil and related effects on business confidence.

Underlying inflation stopped falling and began to increase earlier this year. The Board has been concerned about the prospect of a further pick-up over the period ahead, but over recent months has been weighing the question of whether a period of weaker than expected conditions would contain that pick-up in inflation. Recently revised data show a pick-up to date in the underlying pace of price rises that was less sharp than initially indicated. Moreover, with labour market conditions now a little softer and households more concerned about the possibility of unemployment rising, the likelihood of a significant acceleration in labour costs outside the resources and related sectors is lessening.

Taking into account all the recent information, the path for inflation may now be more consistent with the 2–3 per cent target in 2012 and 2013, abstracting from the impact of the carbon pricing scheme. This assessment will be reviewed on receipt of further data on prices ahead of the Board’s next meeting. An improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary.

The Board noted that financial conditions have been easing somewhat, with interest rates for some housing and business loans declining slightly due to increased competition and the fall in some funding costs in financial markets. The exchange rate has also declined from the very high levels of a few months ago. Credit growth remains low, however, and asset prices have declined.

At today’s meeting the Board judged the current cash rate remained appropriate. As always, the Board will continue to assess carefully the evolving outlook for growth and inflation.

A Chattel Mortgage has a term of 12 months to 60 months. The interest rates are fixed and repayments are made monthly. A residual can be used in the contract so the repayments are lowered. The GST can be claimed upfront if the business is registered for GST and a tax deduction may also be claimed.

If you want to know more about car and equipment finance, give Absolute Financial Services a call on (03) 9888 9292 or visit our website for more information.

Variable Rate : Your interest rate increases or decreases in response to an increase or decrease in the cash rate set by the Reserve Bank of Australia or your lender. Traditionally your home loan interest rates only ever moved in response to a change in the cash rate. But in recent months we have seen that the interest rates have been increased independantly by banks because of increased lending costs.

Fixed Rate : Your interest rate is locked in for a fixed rate usually 1 to 5 years though you can have fixed rate for upto 15 years. A fixed rate loan protects you from future interest rate rises but on the flipside you cannot benefit from falling rates. A fixed rate can also mean that you maybe unable to make extra repayments off your loan or pay it off / refinance within the fixed rate period because of break costs which may be quite large.

Introductury Rates: Introductory rates also known as honeymoon rates are typicall lower than than the standard variable rates for a certain period of time usually 1 to 3 years. At the end of this period they revert to a higher rate.

Talk to Us about interest rates. Give us a call on (03) 9888 9292 or visit our website for more information

Statement by Glenn Stevens, Governor Monetary Policy RBA

The global economy is continuing its expansion, but the pace of growth slowed in the June quarter. The supply-chain disruptions from the Japanese earthquake and the dampening effects of high commodity prices on income and spending in major countries both contributed to the slowing. It is still not clear how persistent this slower growth will be. The supply-chain disruptions are now gradually abating and commodity prices have softened of late, though they generally remain high. In China most indications suggest only a mild slowdown so far.

The central scenario for the world economy over the next couple of years envisaged by most forecasters remains one of growth below the pace of 2010, but at or above long-term averages. Downside risks have increased, however, as concerns have grown over the outlook for the public finances of both Europe and the United States.

Australia’s terms of trade are now at very high levels and national income has been growing strongly. Investment in the resources sector is picking up very strongly and some related service sectors are enjoying better than average conditions. But in other sectors, cautious behaviour by households and the high level of the exchange rate are having a noticeable dampening effect. The impetus from earlier Australian Government spending programs is now also abating, as had been intended.

The resumption of coal production continues, but a full recovery of flood-affected production now looks unlikely before early next year. Precautionary behaviour by households also looks likely to keep some areas of demand weaker in the near term than earlier expected. Overall, growth in real GDP through 2011 is now likely to be at about trend. Over the medium term, overall growth is still likely to be at trend or higher, unless the world economy deteriorates noticeably.

Growth in employment has moderated and the unemployment rate has been little changed, near 5 per cent, for some time now. Reports of skills shortages remain confined, at this point, to the resources and related sectors. After the significant decline in 2009, growth in wages has returned to rates seen prior to the downturn, though productivity growth remains weak.

Year-ended CPI inflation has been high, affected by the extreme weather events earlier in the year. As these effects reverse over the next couple of quarters, CPI inflation should decline. But measures that give a better indication of the trend in inflation have begun to rise over the past six months, after declining for the previous two years. While they have, to date, remained consistent with the 2-3 per cent target on a year-ended basis, the Board remains concerned about the medium-term outlook for inflation.

It is appropriate under such circumstances for monetary policy to exert a degree of restraint. Most financial indicators suggest that it has been doing so, as a result of the Board’s decisions last year. Credit growth has declined over recent months and is very subdued by historical standards, even with evidence of greater willingness to lend. Most asset prices, including housing prices, have also softened over recent months. The exchange rate is high. Each of these variables is affected by other factors as well, but together they point to financial conditions being tighter than normal.

At today’s meeting, the Board considered whether the recent information warranted further policy tightening. On balance, the Board judged that it was prudent to maintain the current setting of monetary policy, particularly in view of the acute sense of uncertainty in global financial markets over recent weeks. In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.

PRINCIPAL AND INTEREST LOANS : This is the most common type of home loan taken up home buyers where regular (monthly / fortnightly / weekly/ payments are made to pay down the money you have borrowed (principal) and also the interest. These loans can be variable rate loans, fully or partially fixed loans. The general term of these loans is 30 years (though you can pay them off faster by making extra repayments though penalties may apply as in case of a fixed rate loan) and at the end of the term the loan is paid off in full.

INTERST ONLY LOANS : In this case regular monthly payments are made to pay interest only. The amount borrowed will stay the same. Interest only loans are available for a fixed time after which they revert to a principal and interst loan. So on a 30 year loan, the first 5 years will be interest only and the rest of the 25 years will be principal and interest.

LINE OF CREDIT : Commonly known as an ‘all-in-one’ loan, you have one single account which is your loan and your wages/income goes into this one account. The line of credit has a fixed limit which can move up and down depending on the credits and the debits. The line of credit is interest only for the whole term. The repayments for this loan come out from within the account and the credit provider will not attempt to take a principal payment. Home buyers using this type of facility have to be disciplined about paying down the principal otherwise they may end up owing more than the limit!!

Absolute Financial Services can help you with picking the right home loan. Give us a call on (03) 9888 9292 or visit our website for more information.

Starting up a budget can be simple. You can have a weekly, monthly or annual budget. A spreadsheet like excel is ideal or you can even use some of the budgeting calculators available over the net.

Include in your budget all the income you receive from your paid job, goverment pensions etc. Account for all regular payments like rent, home loan, car payments etc. Think about what payments are the essential ones and what are the extras. Allocate a fixed amount of money for leisure activties and see you can cut back on the extras. You don’t want to make the budget too tight as you may then find it difficult to stick to it. It is also a good idea to review your budget regularly and make changes to it if your situation changes ie new job,buying/selling your house and expanding your family.

You need a reason to save and once you find one budgeting will help you get there.

1. Instability in the European financial sector
2. Low level of consumer & business confidence
3. Growth in household savings – We are saving more and spending less!
4. Rising unemployment rate

Probably a good time to review your mortgage.

At Absolute Financial Services , we can give you a quick review your current home/commercial loan. You can give us a call on (03) 9888 9292 or visit our website

Your capacity to repay a loan is also tested at a higher interest just to ensure that you have the capacity to absorb any future interest rate hikes.

Eventually it does not matter if you are an investor or a first home buyer, it comes down to if you can service the loan.

Absolute Financial Services can help you work out your borrowing capacity. You can give us a call on (03) 9888 9292 or visit our website