Chamber Talk with QT Better Business columnist Brett Kitching.
Chamber Talk with QT Better Business columnist Brett Kitching.

Low interest rates indicate a gloomy outlook for the economy

THE Reserve Bank of Australia last week announced that interest rates would be kept on hold for at least a little while longer, giving good news for some but bad news for others.

It was considered by a portion of the market that rates would drop a little further, even though they are at historical lows of 2.75% cash rate.

Those looking for a drop in rates are the mortgage holders of Australia - hoping for a further reduction on their loan interest bill. While the rates did not drop any further, maintaining them at historical lows must be seen as a positive for the majority of mortgage holders.

However the fact interest rates are at such a low level indicates a continued somewhat gloomy outlook for the Australian economy.

Interest rates are reduced by the RBA to help stimulate the economy. A rise in interest rates indicates that the economy is overheating to a degree.

The rates at historically low levels, indicates that the economy requires stimulus, and that the rates will remain at those levels until there is increased activity across the nation.

A good measure of increasing activity is in housing approvals and sales. It was good to hear that Ipswich real estate agents are reporting increased activity.

Ray White Ipswich last month reported the largest volume of sales for a month in 20 years, with most of those sales under the $300,000 mark.

On a national front, the forecast is probably best highlighted by a recent Morgan Stanley report. That report has downgraded residential property price growth to 3-4% over the next two years across Australia.

As well as forecasting moderate growth in house prices, Morgan Stanley also forecast a further fall in interest rates across this year to record lows of 2.25%.

This seems to be the consensus with market forecasters, that the national economy will plod along in marginally positive territory without any major boom or bust, for some time yet to come.

Upcoming Events

Breakfast with BDO, Wednesday July 31 at The Ipswich Club 6.45am-8.30am. Featuring keynote speaker Sharon Houghton, BDO's Private Clients partner on the topic of Running your own Self Managed Super Fund. Members $44 / non-members $66. RSVP by Friday, July 26.

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