RBA Rate Decision – July 2014

Hello, Ben Kingsley here. Welcome to the new Financial Year. Today, the Reserve Bank of Australia (RBA) met and we have well predicted, interest rates remain on hold.

What was interesting over the last month is being the communication that is coming out from the Reserve Bank in regards to a sluggishness in the transition of our economy from the mining investment boom into the non-mining sector and how that’s impacting on the GDP. In those minutes, they said that the GDP numbers is going to be a little bit softer for the remainder of 2014 but then improving in 2015.

In addition to that, they are also making commentary about consumer spending and retail spending. They’ve seen the numbers in the last couple of months is a little bit more sluggish than they would have liked and I think that’s a product of the austere budget that the Federal Government released and how that impacted sentiments and confidence. I think moving forward, what we are going to see is more confidence coming back into the marketplace. We see job growth is still consistent and still there. So, I think for the remainder of this year, those numbers will improve better than what most people are expecting. I’m still in the view that there’s still a good chance in late this year where we’ll see a rate rise. That’s if this transition starts to improve and sentiment improves as well. If not, we are going to see interest rates lower for longebudr and we might see our first interest rate move in 2015.

What the Government and the RBA is also really pleased about is housing construction and the pipeline of work because that is how we transition that workforce from the mining sector into the non-mining sectors and bring those skills across. Constructions led recovery and infrastructure and obviously, commercial and residential housing is going to be important part of that.

The last thing that I want to talk about is foreign investment. Last week, the Assistant Governor of the Reserve Bank, Christopher Kent, actually presented to the standing committee in regards to foreign investment in Australia and if that is affecting the affordability for housing. Its important to note what he said during his presentation that he didn’t believe that it was foreign investment that was pushing higher. He actually referred to the arduous planning process that is involved in bringing supply into the property market. He also referred to historically low interest rate which is driving affordability and borrowing power, allowing for this increase in value that has occurred over the last 12 – 18 months in the property market. So that’s the important message, foreign investment into the country is not pushing our prices as much as many people think and as much as reported in the media. And that’s what I want to finish on in this month. Thank you for watching.

 

(Those people watching/reading this should be reminded this is an opinion comment by Ben Kingsley, and should not be used when making decision about financial matters without seeking further clarification and understanding of your own personal circumstances. This article is not advice you should rely upon. I recommend you speak to one of our licensed professionals before taking any action with your financial affairs.)