May 17th, 2013
The Central Bank of Australia, the RBA has lowered its interest rates to an historical low level of 2.75% an unprecedented low to boost growth. This move was expected but came earlier tan expected. This is a sign that the last interest rates cut in December, was ineffective. We are below the 2009 rates during the crisis. At the time the 3% rate, had been called by the RBA an "emergency low". We are below that level.
The goals are to spur the economy, housing, employment but also to lower the Canadian Dollar. The Canadian Dollar is around par with the US Dollar. It was a 60 cents/ US Dollar in 2009.
The RBA took its decision earlier than expected because the situation is getting worse faster than previously thought. Hopes for a rebound in the second semester have been dashed.
Global growth is slowing. Emerging markets were expecting 5.50% for 2013. It appears that it will be closer to 4%. As far as developed countries are concerned expectations have been lowered form 1.4% to 1%. Overall global growth should not be above 2%.
That is bad news for Australia with its exposure to commodities. Australia is hurt by both drop in prices and in demand.
Australia has been benefiting of the commodities mega cycle. It's currency, like gold, has been seen as an hedge against inflation. On the other hand the Australian economy is in a bubble, wages went up a lot, housing too, industry, aside from mining, is not competitive, savings are low. Household are indebted and the nation debt went up 5 fold between 2008 and 2012. Unemployment is high and a lot of people are under employed.
From a safe haven Australia could turn into hell!
The Central Bank of Australia, the RBA has lowered its interest rates to an historical low level of 2.75% an unprecedented low to boost growth. This move was expected but came earlier tan expected. This is a sign that the last interest rates cut in December, was ineffective. We are below the 2009 rates during the crisis. At the time the 3% rate, had been called by the RBA an "emergency low". We are below that level.
The goals are to spur the economy, housing, employment but also to lower the Canadian Dollar. The Canadian Dollar is around par with the US Dollar. It was a 60 cents/ US Dollar in 2009.
The RBA took its decision earlier than expected because the situation is getting worse faster than previously thought. Hopes for a rebound in the second semester have been dashed.
Global growth is slowing. Emerging markets were expecting 5.50% for 2013. It appears that it will be closer to 4%. As far as developed countries are concerned expectations have been lowered form 1.4% to 1%. Overall global growth should not be above 2%.
That is bad news for Australia with its exposure to commodities. Australia is hurt by both drop in prices and in demand.
Australia has been benefiting of the commodities mega cycle. It's currency, like gold, has been seen as an hedge against inflation. On the other hand the Australian economy is in a bubble, wages went up a lot, housing too, industry, aside from mining, is not competitive, savings are low. Household are indebted and the nation debt went up 5 fold between 2008 and 2012. Unemployment is high and a lot of people are under employed.
From a safe haven Australia could turn into hell!
