RBA Rate Decision – March 2018

At the March 2018 RBA board meeting, we saw the cash rate remain on hold at 1.5%.

No surprises there — we know that the rate has been widely tipped to stay on hold from most economists around the country. This is an interesting point because what Governor Lowe made mention in February was that he doesn’t see any strength in moving the cash rate for a good period of time. That’s giving business confidence, potentially, to further invest.

He’s also going to be pretty happy because house prices are starting to fall in some markets, so he’s confident now that they’ve got the balance right —so, being able to keep the cash rate lower for businesses to invest.

We’ve also seen that in terms of the business sentiment numbers.

Business confidence is really high — that’s supporting the story. Also, what’s supporting the story is unemployment numbers continues to fall, ticking down slightly. In addition to that, we’ve seen job ads start to also increase — generally speaking, in terms of the business environment, the economy is looking pretty good. And as we take a look at some of the equity results as well, they also support the story. With mid-year results coming through from some of our companies on the stock market — and we saw some positive numbers come through. A lot stronger numbers than negative numbers and that has actually kept confidence sitting pretty well. If we look at the business environment, it’s looking pretty good. In addition to that, we’ve also seen the RBA looking at their forecasts around GDP and inflation, forecasting a pickup, a good pickup in GDP and inflation into 2019 and beyond. So, they’re the good news stories.

 

The challenges at the moment are the consumer — so the household.

There’s a couple of challenges going on here. Firstly, wage growth. We’re not seeing any of this wages growth — I’m not seeing it flow through from business just yet. That’s obviously why we’ve potentially got this very, very soft inflation number. We need to see some of this wage growth flowing through. We’ve also seen, obviously, the cost-of-living going up, in terms of our medical costs and these types of things; our health insurance costs; our electricity costs. These are all going up, so households aren’t feeling the love, they’re not feeling as they were before. Obviously, with house prices moving down, this could also further impact their confidence around how to spend money going forward.

On top of this, we’ve also got challenges around retail spending. Retail spending is definitely soft. We need to see a little bit more confidence in people getting out there and spending money. I think that is because there is talk about the level of household debt that we’re also currently carrying at the moment.

From that point of view, we’ve got a record level of household debt, consumer confidence is down and wage growth are also being sluggish — broadly across the economy — and these can affect the consumer.

 

They aren’t quite confident enough to get out there and do all the heavy lifting they need to do to see the economy move forward. That’s why the RBA has kept the cash rate on hold for now.

What’s also interesting about this is we saw recently APRA come out and talk about the speed limits they had, in regards to investment lending with property prices falling in some areas.

APRA has flagged that the use by date of this potential speed limit hurdle in the amount of investment lending that can happen is now looking to be removed. That’s obviously a big, important move from APRA to be able to get more confidence into the market — and get that balance right, where we had an overheated property market, and now we don’t have that overheated property market. That is why they’re starting to adjust those levers.

If you want to learn more about some of those levers and what APRA will do next, I’ve shot a video on that so check out this link.

 

I’m interested in your feedback — where do you see the cash rate moving? — so if you’ve got a comment you’d like to share with me, make a comment below.