Cash rate cut hurts vunerable retirees

Published in the Geelong Advertiser, February 2015 by Dale Gillham

Falling fuel prices are a bit like an economic stimulus package, where all Australians benefit. But not all forms of economic stimulus are fair, including the 0.25 per cent cut to the cash rate this month by the RBA, which has left thousands worse off. But that’s not all that isn’t fair.

Those who are most vulnerable in our community, particularly our retirees, who are relying on the interest from their term deposits, are now receiving less. This is likely to be making life increasingly difficult for them, as the ever increasing cost of living will continue to take more from their budgets.

Further, the government recently legislated that term deposit holders have to provide 30 days notice to be able to withdraw funds. So, how is that fair? One has to wonder why this rule has been implemented. All the while, the government debates whether Australia ought to adopt the European policy of ‘bail-in’ of depositors in order to save failing banks. Malcolm Fraser himself said that Australia should fully separate retail banking from the speculative activities of investment banks, which the Glass-Steagall policy provided in the US until 1999 when it was repealed, and we all know what happened eight years later.

So what do we expect in the market?

The All Ordinaries Index (XAO) fell away this week over the first four days of trade, however given the strength of the prior rise, the current fall represents a decline of only 1.7 per cent. The market has risen by around 6.0 per cent over the past two weeks. At market open on Friday, the XAO was up, which is a good sign, however I would still prefer to see the XAO come back slightly further to build greater support for the next rise.

If the market does come back this month, my analysis indicates that it could test 5500 to 5600 points. Alternatively, the market may rise to around 6000 points before the test occurs.

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