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Ben Kingsley Blog post by Ben Kingsley

RBA Cash Rate Decision – July 2018

As we start the new financial year, the Reserve Board met today and, as wildly anticipated, they rinsed and repeated, keeping the cash rate on hold at 1.5%.

Now, even though the cash rate is on hold, I believe that what we’re going to see over the course of the next few months — subject to what happens in the Royal Commission — is banks lift their interest rates.

Because the cost of money is getting more expensive — as we’re seeing with the US Fed Reserve lift their cash rate higher — so this cost of money is spreading around the globe. So, it’s going to cost the bank’s a little bit more, and they’re going to pass some of that on. There’s obviously going to be a PR challenge around this — and that’s got everything to do with the Royal Commission. But just be mindful with your family’s budget and start to factor in that we might be paying a little bit more interest on our repayments.

In a change of pace from my usual commentary around inflation, unemployment, and so forth — I’m not going to do that because this last month, in the middle of June, I heard a presentation from Governor Lowe, which I feel you absolutely need to listen to.

It does go for 25 minutes, but it’s a really, really important 30,000-view-foot of looking down on Australia. It focuses in on productivity, wages, and overall prosperity for our nation. I think there are a lot of good takeaways that government, and also households, need to start to understand in terms of what’s happening in the macro economy that is Australia. It’s really important that you watch this video, and I want to highlight a couple of important points in it. Firstly, when we talk about wages growth, we know that wages growth had been sluggish over the past couple of years. What’s interesting around this story is, it’s not necessarily repeating like it has in the past — there’s a couple of things that are going on here.

Firstly, around competition. So, we don’t have that strong competition, which then pushes up competition for jobs, and we then start to see that wage growth.

But the other really critical thing is technology. With a globalisation of technology, we’re also seeing less demand for human capital, and something needs to change there. So, Governor Lowe explores this, and I think it’s a really important part of his presentation; in terms of how, at the moment, we’re not seeing the diffusion of it trickle down — that innovation and technology coming down.

I want you to focus in on it because it does get a little bit technical.  But I’ll finish with a wrap once you watch the video. Check it out, have a look at the graph, understand the story that is trying to be told, and we’ll come back for a conclusion at the end.

 

For Full Transcript of Governor Lowe’s Speech — Productivity, Wages and Prosperity — please use this link: https://www.rba.gov.au/speeches/2018/sp-gov-2018-06-13.html

 

So there you have Governor Lowe’s views around how he sees the broader macroeconomy.

He made good indications there at the final piece around monetary policy. We obviously also took that deeper dive into the challenges around wage growth, inflation and also productivity. If you cast your mind back to what happened in the early 1990s — we had this big problem around really, really high inflation. We also had very, very poor productivity. Now, what the Keating Government, and the whole government of that era did, was change everything around. We got really great outcomes, in terms of human capital, and we also saw big increases in productivity — that led to wage growth and prosperity. You can see also that Governor Lowe is also positive around how we might get through this period.

He’s optimistic about what this will do, and the diffusion will flow down — eventually, technology will be shared by all parties.

So some really interesting information in there. We have a very, very big agenda as a society — and also as our leader’s plan out the future of our economy. Our politicians get into the day-to-day arguments, and that’s not great for us. We have a problem with spending — we need to tighten that. We know we’ve got problems around utility bills, and how much it costs for heating and other such things. We see the government trying to address that. We also know that our medical costs are also quite high as well — so they also need to be addressed.

I think technology will play a role in this — hoping to bring those household costs down.

Overall, I’m also very optimistic. But there’s a big thing happening here: globalization, technology — the big, important things.

We still need to innovate. We still need to educate. We still need to look for the jobs of the future. Because the world is changing. And that’s why — when we bring it back to our own personal circumstances as an investor — we’re also focusing on where we buy properties, and why we buy properties in certain locations. We want high demand properties in good quality locations — that’s the important message here.

We are playing the long game when it comes to investing — so, we want to be in marketplaces where there are lots of strong opportunities for education and jobs. That is an important part of this story as well.

This has been a change of pace — we have moved to a very, very long video. But I felt it was important, at this moment in time, that we address this story … because it is a very, very big story. We’ll return to the data snapshots next month. But, from this point of view, I’m glad you’ve spent the time taking over half an hour to watch this video because you’ll get a greater sense of what’s happening in regards to the macro long-term prospects and prosperity of this country.

Thanks for watching.

 

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