Investors take note as RBA raises rates again

December 1st, 2009  |  Posted in General

Today, in an unprecedented move, the Reserve Bank announced a 3rd consecutive interest rate rise. We’ve seen 3 consecutive interest rate cuts, but not increases. The .25% increase now brings the cash rate to 3.75%.

A positive sign for investors

We all know the RBA uses interest rates as a tool to manage our economy – cutting them to get us spending and raising them to cool us off. For investors, this rate increase (and the fact that it’s an historic day) could be a good sign that our strengthening sharemarket has infact foretold of a strengthening economy.

The sharemarket is considered a leading indicator for the economy, generally looking forward around 9 - 12 months.

In his statement today, Glenn Stevens, Governor Monetary Policy said "The global economy has resumed growth.  With economic policies remaining expansionary, growth is likely to continue next year, though it will probably be modest in the major countries, due to the continuing legacy of the financial crisis. In China and Asia generally, where financial sectors are not impaired, recovery has been much quicker to date and prospects appear to be for good growth in 2010. Financial markets have improved considerably during 2009, notwithstanding periodic setbacks, and capital flows into Asia and other emerging market regions have been picking up."

The ASX200 is up 41% since February and many commentators now think it will generally continue to rise in the coming years. Mr Stevens’ statement supports this sentiment "In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery."*

As the market gives strength to our economy, a complimentary partnership is often formed, sometimes creating huge momentum and confidence which can result in a faster than expected turnaround of events.

If you’ve been sitting on the fence for a while, waiting for the right time to invest again, it’s time to pay close attention. 

For recommendations or advice on your investing, contact an Investment Adviser at Freeman Fox on 1800 000 369 or take a look at our current featured investments.

*Source: Media release 1 December 2009 “Statement by Glenn Stevens, Governor Monetary Policy” www.rba.gov.au
^Data: IRESS

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