Council Minutes - Town of Cambridge

COUNCIL MINUTES
TUESDAY 20 DECEMBER 2011
CR11.170 INVESTMENT SCHEDULE - NOVEMBER 2011
PURPOSE OF REPORT:
To advise the Council of the amount of surplus funds invested, the distribution of those funds
and the financial performance of each investment (ie. interest earned) year to date.
BACKGROUND:
Council’s Investment Policy No. 3.2.5 allows for investing of funds into direct investment
products and managed funds which comply with both the credit risk rating and terms to maturity
guidelines as set out in the policy.
DETAILS:
Investment Portfolio Performance
At its December 2011 meeting, the Reserve Bank of Australia decided to reduce the cash rate
by a further 0.25% to 4.25%.
The Reserve Bank is concerned about the ongoing sovereign debt crisis in Europe which is still
to be resolved and its noticeable impact on growth in Asia which has begun to slow down. It is
expected that global growth will continue to slow throughout the forthcoming year. Economists
are predicting further interest rates cuts during 2012.
On the local economy, the mining industry continues to perform strongly although other industry
sectors such as retail continue to struggle. The Reserve Bank's latest interest rate cut should
give some relief to Australian households and business. Unemployment continues to remain
close to five per cent. Inflation is expected to remain between the Reserve Bank's target of 2%
to 3%.
In terms of the Town’s investment portfolio, interest rates being obtained over the short term of
two to three months are around 5.5% and 5.6%. Interest rates for securities for periods greater
than six months are between 5.5% and 5.7% with the major Australian banks.
The UBS Bank Bill Index rate (an index measuring performance of interest rates over a 90 day
period) was 4.88% for November 2011. The 90 day BBSW or Bank Bill Swap rate (a measure
of future interest rates) was 4.59% at 30 November 2011. As the Council’s investment portfolio
is predominantly short term cash products, the cash rate of 4.50% for November 2011 is the
more appropriate performance measure.
Against these interest rate indicators, the Town's investment portfolio outperformed the cash
rate with a weighted average interest rate of 5.80%. The weighted average investment period
of 143 days (approximately five months) compares favourably with term deposit rates (with the
major Australian banks) for this period which were an average of 5.6%.
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