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Ben Kingsley Blog post by Ben Kingsley

RBA Rate Decision – October 2014

Hello, the Reserve Board met today and kept interest rates on hold. Well anticipated that they were going to remain on hold and it’s certainly a view that they are going to stay lower for longer. That’s being about installing confidence into the market place for business to start doing more lending. In the last 4 weeks, there have been some big things that have come out into the media.

The most important one is being the commentary around the concern that the RBA has around the number of people who are investing in property or getting property investors finance. It’s at record levels and the Reserve Bank is concern about how that may be playing out in terms of property values. Well, I’m here to say to you that my view is that it’s only isolated into the Melbourne and Sydney market place where we are definitely seeing investor’s activity and prices rising. But let’s put this into perspective, in the 2001 – 2003 period, we actually saw a significantly better growth rates in those times. This particular cycle hasn’t been such a large double digit growth that would concern me. I’d certainly say that if it continues on into the middle of next year then we’ve probably overcooked the overall values and we would see some values come back but we got to put this into perspective. Melbourne and Sydney are mega cities. They are in the top 100 largest population bases of all cities around the world, so, they are big cities and people want to live there.

If conditions are right for them to buy, they then want to choose the location that they want to buy in. That’s where we are seeing a lot of the buyers’ interest. I’m actually pleased that that’s happening because that is consistent with every big city. If you want to get close to town, you going to have to pay a premium to buy into that location.

So my message is clear to the Reserve Bank is that I don’t think that they are going to do macroprudent changes. I think it’s going to be more around having a look at putting an interest charge on some of the lending that might happen for the short term. But they’re really just scare mongering to try and get that sentiment down in the investor market. I’d be saying the same thing to our clients. Our long term strategy is always been long term investment and in property, so we are going to go through a period where we are experiencing wonderful returns for those of us who’ve got our property already in the market place and that’s going to continue. But we would also have periods with slow growth and no growth and potentially, some areas are going to have corrections from the run up that they have at the moment. That’s a market cycle. It happens in every type of cycle. So I’m not too worried about that. I’m very confident on the long term areas and long term growth prospect when it comes to property investment.

The other message that I want to talk to you today is about the exchange rate. The Australian Dollar has gone sub-90. In fact, it has moved around 6% in the last month which is an exciting outcome for us because that’s good news for the economy in getting the economic cycle moving and its good news for our exporters. It’s not so good however, for the imports. We are going to start paying a little bit more in terms of imports and that’s going to have pressure on inflation. Now inflation is already at that top end of the Reserve Bank’s range so my concern with that is that it might force the Government and the RBA to actually raise interest rates sooner rather than later. Now, economists and everyone basically around us is looking at interest rates moving in at the second half of 2015. This may actually see interest rates moving maybe the start of the second quarter next year. Again, I don’t think that that’s a bad thing longer term if it’s going to take a bit of the heat out of the property market cause the property market is so central to the overall economic activity that occurs in the country. So I would love to see the exchange rate stay around the 85% – 90% range. That’s a nice sweet spot for us.

The other thing I want to finish with is unemployment and in terms of the job growth that has been occurring. What we’ve actually seen is some numbers out of ANZ’s research piece that the job enquiries are actually up for full time work. That says to me that the sentiment is improving and we’re seeing that as back to pre-budget levels. So we’re actually seeing that sentiment change. We’ve got good sentiments, potentially some economic activities, some job growth, inflation pressures so obviously, the only way for interest rates from this point forward is up and that’s the message for now. They are going to stay this way till Christmas but into the new year, they are going to potentially start to rise and that’s not a bad thing.

 

(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.)

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