Australian interest rates reach historic low

In early February, the Reserve Bank of Australia (RBA) cut the official cash rate by 25 basis points to 2.25%, citing weaker growth and rising unemployment. RBA Governor, Glenn Stevens, said "The bank's assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher than earlier expected. The economy is likely to be operating with a degree of spare capacity for some time yet."

Australian mortgage rates are expected to fall to their lowest level since 1968. The RBA, which had previously been reluctant to lower rates further for fear of fuelling a speculative housing bubble, indicated the introduction of additional lending limits on investors should help avoid such a problem. The RBA decision was also influenced by continued weakness in the price of our two biggest export commodities, namely iron ore and coal. China, India, Canada, Denmark, Russia and Turkey have also recently cut interest rates to help boost their economies, while the European Central Bank unveiled a bigger than expected €1.14 trillion quantitative easing program.

In January, the World Bank and the International Monetary Fund cut their outlook for global growth in 2015 and 2016, primarily because of weaker than expected growth in Europe and Japan. Stimulatory monetary policy and the significant fall in energy prices should help underpin global growth for the next year. At Ausbil, our cyclical orientation is consistent with this view, but some modest tactical adjustments have been made. We have reduced our exposure towards Diversified Metals & Mining and reduced our Telecommunication Services underweight, while exposure to high yielding domestic banks has been moved from neutral to overweight.

record low cash rates

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