Eye On Australia: Is Hope All That Remains?

EYE ON AUSTRALIA: RATE CUT
At a 45 year low with more room to go, will it be enough?

As forecast by most, the Reserve Bank of Australia lowered its benchmark cash rate by 100 basis points today. At 3.25%, Aussi rates are at a 45 year low, and now they can only hope that easing credit combined with the governments $27 Billion ($42B AUS) stimulus package will provide a cushion down under. The ASX 200 rose +0.35% on the news .

For Glenn Stevens the game plan will now shift to “wait & see” as the next step in recovery is largely out of their hands. Although at this stage the RBA still has room to cut, the only prospects for sustaining growth at levels seen over recent years rest on a rebound in external demand for base metals and energy & agricultural commodities. In effect, the rate cuts and stimulus package in Australia, at best, may help keep the country on a relatively even footing while it waits for Beijing’s stimulus package to kick in.

We will keep our eye on Australia and the EWA etf. While we admire Governor Stevens for the resolve he showed during the bubble period, for now we are not involved in Australian equities. We will be watching for signals that are beyond his control.

Andrew Barber
Director