Tailwinds to recovery: cash rate remains at 2.0%

At its September meeting yesterday, the Reserve Bank of Australia elected to maintain the cash rate at 2.0% for a fourth consecutive month.

Sas  Liyanage, Colliers International Research Analyst, said the economy had entered a relatively calm period following a month of global tremors, with China at the epicentre.

“The turmoil in the global equity market has spurred investors to seek a safe haven in the property market,” Mr Liyanage said. “In early August, China sent shockwaves through the markets by devaluing its currency by 2% to stimulate its slowing economy.

“This will have a two tier effect on effect on Australian property. Firstly, investors are likely to look to protect their wealth by mitigating any further currency risks. Secondly, the relative total annual return from Australian assets are likely to increase, as the income stream will be in Australian dollars."

The RBA desisted from its warnings that a lower currency was ‘likely and necessary’.

Mr Liyanage said this was an indication that the RBA was satisfied the currency had reached a level which could stimulate sectors such as education, tourism, agriculture and services.

“More recently, the lower dollar has stimulated strong employment growth in the health, accommodation/food, recreation and business services,” he said. “The falling commodity prices and the potential US interest rate hike will likely see the local currency sit around the US70 cents mark by the end of the year.

“These conditions are likely to provide a strong platform for an increase in retail spending and demand from the industrial and logistics sector. Retail spending surged in June, exceeding the turnover expectations of 0.4% by lifting to 0.7%.

“Additionally, as investors prepare to preempt the China free trade agreement, the lower dollar is likely to further stimulate the demand for Australian farm and dairy assets. An upswing in consumer spending and strong employment growth is likely to offset these drags on the economy.

“The RBA also expressed a more optimistic view on the unemployment, suggesting that it may have reached its peak. In May, the RBA expected unemployment to reach 6.5% over the year. However, last week, this figure was revised down to 6.0%. This is impacting the commercial markets, particularly on the eastern seaboard, beginning to expereince the increased demand though declining vacancy rates, underpinned by strong absorption.”

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