MEETING OF COUNCIL - Town of Cambridge

COUNCIL MINUTES
TUESDAY 27 NOVEMBER 2012
CR12.184 INVESTMENT SCHEDULE - OCTOBER 2012
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 November 2012 meeting, the Reserve Bank of Australia decided to maintain the cash
rate at 3.25% against market expectations.
The Reserve Bank's view is although the resource boom will peak next year, earlier than
expected, capital spending in the resource sector has been strong and local economy
growth is running close to trend. There have also been some signs of ongoing growth in
consumption and improvement in the property market and share market. Unemployment
has only increased slightly over past months and underlying inflation at two and a half
percent is still within the bank's s target range two to three percent.
On the global economy, the Reserve Bank noted that the European economy is still
contracting although elsewhere economies such as the Chinese economy are stabilising and
the United States economy is showing some moderate growth.
The Reserve Bank feels that at this time a further decrease in the cash rate is not warranted,
although some economists are currently predicting that there is a fifty per cent chance of a
cash rate cut occurring at the Reserve Bank's December 2012 meeting.
In terms of the Town’s investment portfolio, interest rates being obtained over the short term
of three months are around 4.3% with the major banks. Interest rates for securities for
periods six months are around 4.35%.
The UBS Bank Bill Index rate (an index measuring performance of interest rates over a 90
day period) was 3.55% for October 2012. The 90 day BBSW or Bank Bill Swap rate (a
measure of future interest rates) was 3.14% at 31 October 2012. As the Council’s
investment portfolio is predominantly short term cash products, the cash rate of 3.25% for
October 2012 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 5.04%. The weighted average investment
period of 153 days (approximately five months) compares favourably with term deposit rates
(with the major Australian banks) which for this period was an average of 4.35%.
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