RBA Rate Decision – September 2014

As widely anticipated, the Reserve Bank of Australia (RBA) kept interest rates on hold for another month at 2.5% and this is following Glenn Stevens’s commentary to the government last month, around where he saw the cash rate and where he saw the general economy. From a cash rate point of view the take out of that meeting and from his commentary was that he doesn’t see interest rates going any lower. Even if we see a little bit more slowing in the economy, he is concerned about creating a bubble or having inflationary pressures around property and the general economy. So we don’t see interest rates going any lower than what they currently are unless we see a global economic downturn which will force that move. Right now, rates will remain on hold most likely until early next year.

The other commentary that Glenn Stevens was trying to put out to the commercial world was around business investment and actually seeing business start to spend and reinvest. When they do that, it has a flow-on effect to the unemployment level or to the employment level itself. We’re seeing Victoria having a little sluggish numbers in terms a potentially unemployment increasing, New South Wales is going well because they’ve got a lot of infrastructure projects under way, Queensland, Western Australia and a bit of South Australia is also struggling around the slowing down on of the mining boom. It’s important for us to get that message out to business to start reinvesting. He was also talking to some of the share market companies about rather than paying out special dividends to actually reinvest back into their businesses and obviously employ more people because it’s going to have a long-term benefits for the economic activity of our country. We’re seeing a revised number around the forecast GDP to be lower than the usual two to three percent growth rate that they are trying to target and we’re going to see a little bit more of that sluggish economy. On the other side, if interest rates do go up they’ve got the challenges around the Australian dollar. If the dollar increases that’s going to have an impact on our exports. So it’s not easy for them right now. They’re still looking for that spend in the business environment to see that economic activity to start to take over the stimulus from the mining boom.

So that’s the wrap for the interest rates at the moment. Nothing until probably early in the new year when we see some of that new data coming through. If the numbers are sluggish, we’ll be on hold for longer. If they improve then we’ll probably start to see one or two rate rises in 2015.

Finally before I go, we’ve just spent the weekend at the Home Buyer and Property Investor show where we’ve delivered some really great presentations. Not in this newsletter but in our next newsletter this month, keep an eye out for the the links because we’ve actually recorded those presentations and we’re passionate about continuing your education. So please make sure you take a look at those presentations and continue to build your wealth knowledge. Thanks for listening.

 

(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.)