Inflation and Interest Rates Simplified From The Reserve Bank’s Monetary Policy Statement

Two major topics discussed in the Reserve Banks 39-page September Monetary Policy Statement (MPS) are inflation and interest rates. In June, the Bank forecasted inflation to be 4.5% this year. The latest forecast from the Bank expects inflation to be 0.7% lower at 3.8%. Additionally, the Banks 2011 inflation forecast has been reduced from 2.9% to 2.4%.

The lower inflation forecasts are not out of the blue given the lower economic growth projections announced by the Reserve Bank. Factors attributable to the muted inflation pressures include: weaker consumer demand, basically non-existent lending growth, unemployment figures at over 5%, reductions in house prices and deleveraging.

The Bank stated that it will look through the impact on inflation as a result of the increase in GST, the Emissions Trading Scheme, plus other related tax changes. The Bank forecasts that an additional 2.7% will be added to inflation as a result of these former factors, with the Consumer Price Index crowning at 4.8% in June 2011. Taking aside these factors, the underlying inflation rate would be 2.1%.

It is important to note the following stern warning delivered by the Bank in the September MPS. If the factors mentioned above begin to influence individuals behaviour, then the Bank will move quickly to increase interest rates. Price setting will be monitored, as will wage negotiations and surveys of inflationary expectations to gauge if there is evidence that the bump in inflation is becoming ingrained. If this is the case, it can be expected that fast and material increases in the Official Cash Rate (OCR) will follow.

Regarding interest rates, the theme is the same as with economic growth and inflation lower for longer. Unlike the June MPS, the Bank now expects interest rates to rise a lot more slowly. This links back to the Banks cuts to GDP and inflation estimates. The June MPS forecasted interest rates to rise 3.1 % over the next two years, up from the then current level of 3.0% to 6.1% by the end of 2012.

According to the September MPS, the Bank now estimates interest rates to rise by only half as much. 90-day bank bills are forecast to increase from their current 3.2% to be 4.1% in December 2011 an increase of just 1.4%.

If you have a floating mortgage, this reduction in the increase of estimated interest rates will be good news. Although, as the Bank does point out in the September MPS, it expects to increase the OCR over the next few years, the pace and extent of these increases will be lower than forecast in the June MPS.

Insurance Policy – Nomination And Assignment

Once you apply for a life insurance policy there are some important features and benefits you should apply for. Like the most important benefit is the nomination facility. It is an important and mandatory feature of the policy. There is another feature called Assignment offered in the policy. Let us look at the importance between the two features.

Nomination is a benefit where in case of death of the policy holder the funds are given to beneficiary (nominee), whose name is mentioned by the policyholder while enrolling for the policy. The policyholder has the option to change the nominee at any time during the term of the policy. If you want the proceeds to be given to the nominee make sure the name and details are mentioned correctly. The details of the nominee required are his name, age, address and his relationship with the policyholder

Assignment, is when the policyholder wants to give another person the rights of the policy , this is done through a deed and the insurer need to be given a notice for the same. The policyholder is called the assignee and the person who he appoints is called the assignor. Here the assignee has the complete power and title of the policy. He can make decisions like surrendering the policy or even reassign the policy. This assignment must be known to the insurer through a notice and should be in writing.

As are long-term contracts and their benefits are more complicated as they depend on the occurrence of pre-defined insured events. Nomination is a choice which the policyholder has to allow the proceeds of the policy to be given to the nominee incase of his death.

The nominee can be changed by the policyholder during the term of the policy. For women, they may keep changing their nominees according to the various phases in their lives. Like, when they are single their parents would be the nominee, when married the name can be changed to their husbands and there after to their children. You can hence change your nominee any time during the period of the policy. The nominee may not necessarily be related to the policyholder. If the policyholder wants to change the nomination he just needs to fill a form given by the insurer and give the details of the new nominee.

A policyholder has a choice to appoint as many nominees as he wishes and mention their shares for the proceeds accordingly. Remember always to make sure you appoint a nominee while applying for the policy. This feature will help your loved in an unforeseen event of death of the policyholder.