Hi and welcome to this month’s Dominion Finance newsletter
Here we are in August on the downhill slopes of winter, surely the warm weather cannot be too far away.
The Reserve Bank raised the cash rate another 50 basis points today, and along with inflation at 6.1% it feels like we are going to be in tough times for a while, but maybe not as tough as was first predicted.
Over the past two years there have been a lot of predictions from the experts on the how the economy, interest rates, and house prices would either plummet or skyrocket. The emotive terms seem to work best for the media. Last year the Reserve Bank tipped that the cash rate would not increase until 2023 and possibly 2024. In their defence they did not know about Russia’s intent to invade Ukraine, or international supply chain problems. However, as we all know the cash rate started climbing this year with the prediction it would rise for some time and be leveling out to keep inflation in hand.
So, with the certainty in mind that the cash rate is going up for a while, the Reserve Bank has come out and said it now predicts that the cash rate may drop as early as 2023, peaking at 3% not the 4.5% they had previously stated. This will be very interesting as many people locked in a fixed rate last year for two years, and the decision to fix again or go variable may not be an easy one. Certainly, those who locked in their interest rate early should be feeling very satisfied with their decision.
Of course, predictions are often correct, it is just the timing of when they will occur may be inaccurate. In 2020 there were predictions the property market would crash with the pandemic, and the reverse turned out to be true, until now. Property prices are now nose diving and the demand has dropped right off with auction clearance rates quite low. There may be quite a few opportunities in the market for the prudent investor in the coming months.
Another prediction is the cost of building and renovating will finally ease off next year. With inflationary pressure the number of new builds and renovations will reduce which will allow suppliers meet demand and get back to a more normal state.
So, to sum up, somethings are going up and others are going down, and at some point, these trends will reverse.
We should have all bought shares in the crystal ball industry, and we would have been laughing all the way to the bank.
Until next month, stay healthy and warm.
At its meeting today, the Board decided to increase the cash rate target by 50 basis points to 1.85 per cent. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 1.75 per cent.
The Board places a high priority on the return of inflation to the 2–3 per cent range over time, while keeping the economy on an even keel. The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments. The outlook for global economic growth has been downgraded due to pressures on real incomes from higher inflation, the tightening of monetary policy in most countries, Russia’s invasion of Ukraine and the COVID containment measures in China.
** The information provided in this newsletter is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial advice. Before acting on any information in this newsletter, you should consider its appropriateness in relation to your personal situation. **