MEETING OF COUNCIL - Town of Cambridge

COUNCIL MINUTESTUESDAY 26 FEBRUARY 2013CR13.11 INVESTMENT SCHEDULE - JANUARY 2013PURPOSE OF REPORT:To advise the Council of the amount of surplus funds invested, the distribution of those fundsand 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 investmentproducts and managed funds which comply with both the credit risk rating and terms to maturityguidelines as set out in the policy.DETAILS:Investment Portfolio PerformanceAt its February 2013 meeting, the Reserve Bank of Australia decided to leave the cash rate at3.00%.The Reserve Bank's view is that the recent interest rate cuts are having the desired effect withsigns of increased spending on durable goods such as vehicles, rising house prices and aswitch by savers into higher risk investments. Commodity prices have also rebounded sharplyboosting the mining sector although it is recognised that the mining sector is approaching itspeak. The labour market is softening and unemployment edged slightly higher which iscontaining the pressure on labour costs. Inflation is currently within the Reserve Bank's targetof between two and three per cent.On the global economy, the Reserve Bank noted that market conditions have improved with theUnited States avoiding the fiscal cliff crisis, Europe's debt crisis easing and growth in Chinahaving stabilised at a robust pace.Given these positive signs, the Reserve Bank is not planning to cut interest rates further at thistime although it has indicated that there is scope to do so if required.In terms of the Town’s investment portfolio, interest rates being obtained over the short term ofthree months are around 4.2% with the major banks. Interest rates for securities for periods sixmonths are around 4.1%.The UBS Bank Bill Index rate (an index measuring performance of interest rates over a 90 dayperiod) was 3.21% for January 2013. The 90 day BBSW or Bank Bill Swap rate (a measure offuture interest rates) was 2.95% at 31 January 2013. As the Council’s investment portfolio ispredominantly short term cash products, the cash rate of 3.00% for January 2013 is the moreappropriate performance measure.Against these interest rate indicators, the Town's investment portfolio outperformed the cashrate with a weighted average interest rate of 4.65%. The weighted average investment periodof 169 days (approximately five months) compares favourably with term deposit rates (with themajor Australian banks) which for this period was an average of 4.20%.H:\CEO\GOV\COUNCIL MINUTES\13 MINUTES\FEBRUARY 2013\C CR.DOCX 167