AdviserVoiceReserve Bank Governor Archives - AdviserVoice https://www.adviservoice.com.au/tag/reserve-bank-governor/ Financial planner information & financial planner education/CPD - AdviserVoice Sun, 26 Jul 2026 21:30:00 +0000 en-US hourly 1 https://wordpress.org/?v=7.0.2 Record Wealth! RBA open to “macroprudential” tools https://www.adviservoice.com.au/2014/09/record-wealth-rba-open-macroprudential-tools/ https://www.adviservoice.com.au/2014/09/record-wealth-rba-open-macroprudential-tools/#respond Thu, 25 Sep 2014 22:00:08 +0000 https://adviservoice.com.au/?p=33068

Financial Accounts; Population; Job Vacancies; Final Budget Outcome

  • Household wealth stood at a record $7,780.6 billion at the end of June, up $97.4 billion or 1.3 per cent over the quarter. In per capita terms, wealth rose to a record $330,841 in the June quarter, up $2,860 over the quarter
  • Population: Australia’s population grew by 111,500 people over the March quarter to 23,452,700. Annual population growth eased from 1.72 per cent to 1.69 per cent. Population growth is above decade averages in just NSW (32 per cent above decade averages) and Victoria (14 per cent above decade averages).
  • Baby boom: In the year to March, 306,500 babies were born, just shy of the record 312,200 babies born in the year to September 2013. A total of 231,500 people migrated to Australia over year to March, well off the low of 172,100 in the year to December 2010.
  • Job vacancies: Job vacancies fell by 0.7 per cent in the three months to August – the first fall in three quarters. Job Vacancies are up 4.1 per cent on a year ago.
  • The final Federal Budget deficit for 2013/14 was $48.5 billion. The result was inflated by the contribution to bolster the Reserve Bank’s balance sheet.
  • The Reserve Bank Governor was a panel discussant at the Melbourne Economic Forum. The Governor once again reiterated the concerns about the lift in house prices and “unbalanced” investor demand. The Governor was sceptical about using macroprudential tools “as a panacea” but is open to using them to ensure sustainable housing and  lending practices.

What does it all mean?

  • The old adage is that it is time in the market, not market timing. And that adage certainly applies to the wealth of Australians.Not only has household wealth levels lifted to fresh record highs but generational-low interest rates are also reducing borrowing costs across an array of sectors. The global financial crisis caused the biggest ever drop in wealth for Australian households, however wealth levels have been repaired over the past couple of years and have hit new highs. In short, we aren’t as badly off as it may seem. Average financial wealth per person stands at just over $330,841.
  • Australia’s financial wealth lifted by over $97 billion in the June quarter. Interestingly the improvement in wealth levels and low interest rate environment over the past year has supported a lift in consumer activity. Interestingly almost 22 per cent of total household assets are being held in cash and deposits – well above the decade average of 20 per cent.
  • As the Reserve Bank has highlighted on many an occasion, the improvement in household balance sheets certainly bodes well for future spending. And given that a low interest rate environment is likely to be part of the economic landscape over the coming year, it is likely to see households continue to invest in other asset classes and spend a little bit more freely.
  • The strength in share markets has certainly been the key driver of the turnaround in wealth and more importantly the pickup in wealth is expected to continue. CommSec expects an ongoing improvement in wealth over coming quarters. The cheap cost of debt will support Corporate Australia and over the coming year CommSec expects Aussie businesses (outside of mining) to feel more confident to ramp up investment plans.
  • Australian superannuation funds are holding well over 1½-times the ‘normal’ proportion of money in defensive assets like cash and bank deposits. That is not to say that super funds have not been investing in equity markets, rather that equity investments have been less than the cash inflows recorded by fund managers. The risk for fund managers is being caught with too much money on the sidelines while equity markets track higher. With term deposit rates offering lower returns than growth assets, it is likely pension funds will allocate a larger proportion of inflows to listed property funds and equity markets
  • The latest population figures are encouraging. Population growth is healthy and in a broader sense rising, underpinned by migration. And if more people are coming to Australia that means greater demand for houses, cars and retail items. Clearly faster population growth is good news for builders and retailers.
  • Some people aren’t convinced that faster population growth is a good thing. It is all about striking the right balance. If we need more workers and we can’t get them locally, it makes sense that we bring them in from abroad. It is vital that supply and demand for workers is brought into balance.
  • The lift in migration is also positive from a longer-run point of view in that it flattens out the ageing profile. We will need more in the way of younger people over time to support the growing ranks of pensioners.
  • There are further signs that unemployment is close to peaking. Job vacancies have effectively gone sideways over the past three months after having recorded a healthy lift in the prior six months. And coupled with previous data showing the ongoing lift in in newspaper advertisements and internet listings, and growth in full time jobs, it is pretty clear that the labour market is in better shape. A lift in new jobs and improvement in job security will underpin consumer spending, home purchases and building.

What do the figures show?

Financial Accounts:

  • Total household wealth (net worth) stood at a record $7,780.6 billion at the end of June, up $97.4 billion or 1.3 per cent over the quarter. In per capita terms, wealth rose to a record $330,841 in the June quarter, up $2,860 over the quarter.
  • In real terms, the value of land and dwellings rose by $48.2 billion in the June quarter while financial assets fell by $45 billion. Net saving plus real wealth rose by $37.6 billion in the quarter.
  • Households held a record $850.5 billion in cash and deposits at the end of June. Cash and deposit holdings represented 21.9 per cent of financial assets, above the decade average of 20 per cent.
  • Pension fund (superannuation fund) assets rose by $14.8 billion to $1,641.2 billion in the June quarter. Cash and deposits stood at 15.8 per cent of financial assets, still well above the long-term average of 9.3 per cent.
  • Foreign holdings of Australian shares rose by $1.8 billion in the June quarter to a record $715.9 billion. Foreigners held 45.9 per cent of Australian listed shares at the end of June, down from 46.2 per cent in the March quarter although above the long-term average of 42.5 per cent.
  • Listed shares accounted for 16.3 per cent of assets in the June quarter, down from 16.4 per cent in the March quarter and below the long-term average of 17.9 per cent.
  • Australian non-financial private companies held $402.4 billion in cash and deposits at the end of June. Cash and deposits were 43.4 per cent of all financial assets in the quarter, up from 42.7 per cent of financial assets in the March quarter but below the 22-year high of 45.7 per cent recorded in the December quarter 2011. The long-term average is 38.9 per cent.

Population Statistics:

  • Australia’s population expanded by 388,400 people over the year to March 2012 to 23,452,700 people. Overall, Australia’s population growth rate eased from 1.72 per cent to 1.69 per cent. Australia’s population grew by 111,500 people over the March quarter. Population growth hit a 5-year low of 1.39 per cent in the year to March 2011 and has modestly improved over subsequent quarters.
  • A total of 231,500 people migrated to Australia over year to March, well off the low of a gain of 172,100 in the year to December 2010. The record high was 315,700 in-bound migrants over the year to December 2008.
  • There were 306,500 babies born in the past year, just shy of the record 312,200 births in the year to September 2013. And deaths (149,500) held just shy of the record highs reached in September quarter 2012.
  • Over the past year population growth was the strongest in Western Australia (2.53 per cent) followed by Victoria (1.90 per cent), Queensland (1.64 per cent), NSW (1.55 per cent), the ACT (1.44 per cent), Northern Territory (1.42 per cent), South Australia (0.93 per cent), and Tasmania (0.31 per cent).
  • Population growth is above decade averages in just NSW (32 per cent above decade averages) and Victoria (14 per cent above decade averages). Population growth has lifted for 12 straight quarters in NSW, and 7 straight quarters in Tasmania. Queensland and Victoria. Population growth is at decade lows in Tasmania.

Job vacancies:

  • Job vacancies fell by 0.7 per cent in the three months to August after rising by 2.4 per cent in previous three months.
  • Over the past year job vacancies fell by 5,700 or 4.1 per cent. Over the past three month vacancies rose the most in retail trade (up 4,800) and Administrative and support services (up 2,600). Vacancies fell most in construction and Healthcare & social assistance (both down 1,100), and Public Administration and Safety (down 1,100).

What is the importance of the economic data?

  • The Australian Bureau of Statistics releases the Financial Accounts publication each quarter. The data covers assets, liabilities and financial flows for the key sectors of the economy. Figures on financial wealth help reveal the true state of household finances.
  • Demographic Statistics are issued by the Bureau of Statistics each quarter. The figures include estimates of births, deaths, in-bound and out-bound migration movements and estimates of population change by State.
  • The Australian Bureau of Statistics (ABS) and Federal Treasury release the Modellers’ Database each quarter. The ABS notes: “the Modellers’ Database consists of over 500 quarterly times series constructed from the NIF and TRYM econometric models. They are useful to economists, econometricians, financial analysts and students.
  • The Australian Bureau of Statistics releases Job Vacancies data each quarter. The data is useful in gauging the strength of the job market.

What are the implications for interest rates and investors?

  • Foreign investors are actively interested in the direction of our economy, outlook for our companies and in the movements of the Aussie dollar. Foreign investors can exert significant power over our financial markets.
  • Household and company balance sheets remain strong, and it is likely that more money will be put to work in the low interest rate environment over the coming year.
  • The lift in population growth is good news for a raft of Australian companies. Governments must ensure that our infrastructure expands in line with our population.
  • The Reserve Bank is focused on ensuring that property price growth is more sedate and sustainable over the medium term and as such has opened the door to the use of marcoprudential tools to ease some of the heat from the housing market. Expect more detailed discussion in coming months by regulators.
]]>

Financial Accounts; Population; Job Vacancies; Final Budget Outcome

  • Household wealth stood at a record $7,780.6 billion at the end of June, up $97.4 billion or 1.3 per cent over the quarter. In per capita terms, wealth rose to a record $330,841 in the June quarter, up $2,860 over the quarter
  • Population: Australia’s population grew by 111,500 people over the March quarter to 23,452,700. Annual population growth eased from 1.72 per cent to 1.69 per cent. Population growth is above decade averages in just NSW (32 per cent above decade averages) and Victoria (14 per cent above decade averages).
  • Baby boom: In the year to March, 306,500 babies were born, just shy of the record 312,200 babies born in the year to September 2013. A total of 231,500 people migrated to Australia over year to March, well off the low of 172,100 in the year to December 2010.
  • Job vacancies: Job vacancies fell by 0.7 per cent in the three months to August – the first fall in three quarters. Job Vacancies are up 4.1 per cent on a year ago.
  • The final Federal Budget deficit for 2013/14 was $48.5 billion. The result was inflated by the contribution to bolster the Reserve Bank’s balance sheet.
  • The Reserve Bank Governor was a panel discussant at the Melbourne Economic Forum. The Governor once again reiterated the concerns about the lift in house prices and “unbalanced” investor demand. The Governor was sceptical about using macroprudential tools “as a panacea” but is open to using them to ensure sustainable housing and  lending practices.

What does it all mean?

  • The old adage is that it is time in the market, not market timing. And that adage certainly applies to the wealth of Australians.Not only has household wealth levels lifted to fresh record highs but generational-low interest rates are also reducing borrowing costs across an array of sectors. The global financial crisis caused the biggest ever drop in wealth for Australian households, however wealth levels have been repaired over the past couple of years and have hit new highs. In short, we aren’t as badly off as it may seem. Average financial wealth per person stands at just over $330,841.
  • Australia’s financial wealth lifted by over $97 billion in the June quarter. Interestingly the improvement in wealth levels and low interest rate environment over the past year has supported a lift in consumer activity. Interestingly almost 22 per cent of total household assets are being held in cash and deposits – well above the decade average of 20 per cent.
  • As the Reserve Bank has highlighted on many an occasion, the improvement in household balance sheets certainly bodes well for future spending. And given that a low interest rate environment is likely to be part of the economic landscape over the coming year, it is likely to see households continue to invest in other asset classes and spend a little bit more freely.
  • The strength in share markets has certainly been the key driver of the turnaround in wealth and more importantly the pickup in wealth is expected to continue. CommSec expects an ongoing improvement in wealth over coming quarters. The cheap cost of debt will support Corporate Australia and over the coming year CommSec expects Aussie businesses (outside of mining) to feel more confident to ramp up investment plans.
  • Australian superannuation funds are holding well over 1½-times the ‘normal’ proportion of money in defensive assets like cash and bank deposits. That is not to say that super funds have not been investing in equity markets, rather that equity investments have been less than the cash inflows recorded by fund managers. The risk for fund managers is being caught with too much money on the sidelines while equity markets track higher. With term deposit rates offering lower returns than growth assets, it is likely pension funds will allocate a larger proportion of inflows to listed property funds and equity markets
  • The latest population figures are encouraging. Population growth is healthy and in a broader sense rising, underpinned by migration. And if more people are coming to Australia that means greater demand for houses, cars and retail items. Clearly faster population growth is good news for builders and retailers.
  • Some people aren’t convinced that faster population growth is a good thing. It is all about striking the right balance. If we need more workers and we can’t get them locally, it makes sense that we bring them in from abroad. It is vital that supply and demand for workers is brought into balance.
  • The lift in migration is also positive from a longer-run point of view in that it flattens out the ageing profile. We will need more in the way of younger people over time to support the growing ranks of pensioners.
  • There are further signs that unemployment is close to peaking. Job vacancies have effectively gone sideways over the past three months after having recorded a healthy lift in the prior six months. And coupled with previous data showing the ongoing lift in in newspaper advertisements and internet listings, and growth in full time jobs, it is pretty clear that the labour market is in better shape. A lift in new jobs and improvement in job security will underpin consumer spending, home purchases and building.

What do the figures show?

Financial Accounts:

  • Total household wealth (net worth) stood at a record $7,780.6 billion at the end of June, up $97.4 billion or 1.3 per cent over the quarter. In per capita terms, wealth rose to a record $330,841 in the June quarter, up $2,860 over the quarter.
  • In real terms, the value of land and dwellings rose by $48.2 billion in the June quarter while financial assets fell by $45 billion. Net saving plus real wealth rose by $37.6 billion in the quarter.
  • Households held a record $850.5 billion in cash and deposits at the end of June. Cash and deposit holdings represented 21.9 per cent of financial assets, above the decade average of 20 per cent.
  • Pension fund (superannuation fund) assets rose by $14.8 billion to $1,641.2 billion in the June quarter. Cash and deposits stood at 15.8 per cent of financial assets, still well above the long-term average of 9.3 per cent.
  • Foreign holdings of Australian shares rose by $1.8 billion in the June quarter to a record $715.9 billion. Foreigners held 45.9 per cent of Australian listed shares at the end of June, down from 46.2 per cent in the March quarter although above the long-term average of 42.5 per cent.
  • Listed shares accounted for 16.3 per cent of assets in the June quarter, down from 16.4 per cent in the March quarter and below the long-term average of 17.9 per cent.
  • Australian non-financial private companies held $402.4 billion in cash and deposits at the end of June. Cash and deposits were 43.4 per cent of all financial assets in the quarter, up from 42.7 per cent of financial assets in the March quarter but below the 22-year high of 45.7 per cent recorded in the December quarter 2011. The long-term average is 38.9 per cent.

Population Statistics:

  • Australia’s population expanded by 388,400 people over the year to March 2012 to 23,452,700 people. Overall, Australia’s population growth rate eased from 1.72 per cent to 1.69 per cent. Australia’s population grew by 111,500 people over the March quarter. Population growth hit a 5-year low of 1.39 per cent in the year to March 2011 and has modestly improved over subsequent quarters.
  • A total of 231,500 people migrated to Australia over year to March, well off the low of a gain of 172,100 in the year to December 2010. The record high was 315,700 in-bound migrants over the year to December 2008.
  • There were 306,500 babies born in the past year, just shy of the record 312,200 births in the year to September 2013. And deaths (149,500) held just shy of the record highs reached in September quarter 2012.
  • Over the past year population growth was the strongest in Western Australia (2.53 per cent) followed by Victoria (1.90 per cent), Queensland (1.64 per cent), NSW (1.55 per cent), the ACT (1.44 per cent), Northern Territory (1.42 per cent), South Australia (0.93 per cent), and Tasmania (0.31 per cent).
  • Population growth is above decade averages in just NSW (32 per cent above decade averages) and Victoria (14 per cent above decade averages). Population growth has lifted for 12 straight quarters in NSW, and 7 straight quarters in Tasmania. Queensland and Victoria. Population growth is at decade lows in Tasmania.

Job vacancies:

  • Job vacancies fell by 0.7 per cent in the three months to August after rising by 2.4 per cent in previous three months.
  • Over the past year job vacancies fell by 5,700 or 4.1 per cent. Over the past three month vacancies rose the most in retail trade (up 4,800) and Administrative and support services (up 2,600). Vacancies fell most in construction and Healthcare & social assistance (both down 1,100), and Public Administration and Safety (down 1,100).

What is the importance of the economic data?

  • The Australian Bureau of Statistics releases the Financial Accounts publication each quarter. The data covers assets, liabilities and financial flows for the key sectors of the economy. Figures on financial wealth help reveal the true state of household finances.
  • Demographic Statistics are issued by the Bureau of Statistics each quarter. The figures include estimates of births, deaths, in-bound and out-bound migration movements and estimates of population change by State.
  • The Australian Bureau of Statistics (ABS) and Federal Treasury release the Modellers’ Database each quarter. The ABS notes: “the Modellers’ Database consists of over 500 quarterly times series constructed from the NIF and TRYM econometric models. They are useful to economists, econometricians, financial analysts and students.
  • The Australian Bureau of Statistics releases Job Vacancies data each quarter. The data is useful in gauging the strength of the job market.

What are the implications for interest rates and investors?

  • Foreign investors are actively interested in the direction of our economy, outlook for our companies and in the movements of the Aussie dollar. Foreign investors can exert significant power over our financial markets.
  • Household and company balance sheets remain strong, and it is likely that more money will be put to work in the low interest rate environment over the coming year.
  • The lift in population growth is good news for a raft of Australian companies. Governments must ensure that our infrastructure expands in line with our population.
  • The Reserve Bank is focused on ensuring that property price growth is more sedate and sustainable over the medium term and as such has opened the door to the use of marcoprudential tools to ease some of the heat from the housing market. Expect more detailed discussion in coming months by regulators.

The post Record Wealth! RBA open to “macroprudential” tools appeared first on AdviserVoice.

]]> https://www.adviservoice.com.au/2014/09/record-wealth-rba-open-macroprudential-tools/feed/ 0 RBA Governor promotes interest rate stability https://www.adviservoice.com.au/2014/03/rba-governor-promotes-interest-rate-stability/ https://www.adviservoice.com.au/2014/03/rba-governor-promotes-interest-rate-stability/#respond Sun, 09 Mar 2014 20:40:30 +0000 https://adviservoice.com.au/?p=28618

Reserve Bank Governor Testimony

  • The Reserve Bank Governor has delivered testimony to the House of Representatives Economics Committee.
  • The Governor has delivered his clearest statement yet that the economy is lifting and the focus is now on ensuring that the inflation is contained, households don’t over borrow and, more importantly that growth is manageable.
  • The clear sense from today’s testimony to the Parliamentary Economics Committee is that Reserve Bank officials are extremely comfortable with current settings. “We have signalled the likelihood, if the economy evolves more or less as expected, of a period of stability in the cash rate. As well as the low level of interest rates generally, a sense of stability should be of some help for businesses and households as they form their plans”.
  • The tone and comments from the testimony is consistent with CommSec’s view that the cash rate will remain on hold until later in the year before lifting.

What does it all mean?

  • The Reserve Bank Governor has delivered his clearest statement yet that the economy is lifting and the focus is now on ensuring that the inflation is contained, households don’t over borrow and, more importantly that growth is manageable. The clear sense from today’s testimony to the Parliamentary Economics Committee is that Reserve Bank officials are extremely comfortable with current settings.
  • The Reserve Bank Governor’s commentary was similar to the Monetary Policy Statement released a fortnight ago. However his comments today provided more clarity and reinforced our view that interest rates are solidly on hold in the near term and likely to lift by the end of the year. Interestingly the question and answer time was a lot more insightful than the prior testimony in December where it was more dictated by political self-interest than macroeconomic interests.
  • There was a lot of robust discussion on a variety of issues ranging from the lift in house prices, the likely impact in housing affordability, China’s shadow banking system, the level of foreign investment and rather amusingly a question on what is “jawboning” in the context of the currency.
  • The forward-looking indicators across the economy are consistent with a lift in activity over coming months. The Governor made mention that while unemployment will continue to lift; it is a lagging indicator “tending to lag by 1-2 quarters”.
  • Interestingly the Governor discussed the “new normal” that we have noted in previous reports. Stevens indicates that current credit growth of 5-6% “is ok” and that it was unlikely “we will be going back to 15%-16%” credit growth. The Governor mentioned that household debt levels are high but not disastrous and a sedate level of credit growth would be the best outcome for a sustainable longer-term growth story.
  • The clear sense from today’s testimony to the Parliamentary Economics Committee is that Reserve Bank officials are comfortable with current settings. Interest rate settings are well below a “normal” or neutral setting, but they are about right for the times. It is clear that the Reserve Bank is well aware of the multispeed nature of the domestic economy and the super stimulatory environment was not only insulating the economy from the pullback in mining investment but also underpinning a lower currency – boosting exports.
  • Interestingly the Governor made the distinction with a wry smile that “jawboning” may be a fancy term given by market commentators to the Reserve Bank having a subtle view on the currency. In recent times the central bank has made it pretty clear that a lower Aussie dollar would be preferable in an effort to supporting activity. The Governor was pushed on the issue of surprisingly high inflation despite a weak labour market and he suggested that the current inflation landscape is a puzzle and there may be some “noise in the quarterly inflation read.
  • Overall it is clear the outlook for the economy has improved over the last few months. And while the growth in house prices has been unsettling from an affordability sense, it has lifted wealth levels and also supported confidence. Importantly the lift in dwelling approvals to record highs should ensure that more sedate price growth takes place over the second half of the year.
  • The impact that foreign residential property investment is having on inflating property prices was discussed and the Reserve Bank Governor mentioned that “in particular parts of our cities, the role of foreign investors is quite prominent indeed, but I suspect rather less prominent than some of the headlines might suggest”. It is likely to be a topic of future discussion and the Central Bank may provide further opinion on this issue.
  • The Reserve Bank Governor was asked about the role of macro prudential tools (such as mandating borrowers to have higher deposits before seeking home loans) to quell strong growth in house prices. The Governor said that it could be “a useful adjunct” to monetary policy but that we need to “go into this with a bit of realism”. Stevens noted that higher loan to valuation ratios could hurt first home buyers in particular. And this would have deeper ramifications of a political nature.
  • The Reserve Bank remains quietly confident that the Australian economy is on a sustainable recovery path. House prices are rising, share markets are healthier, population growth is strong, retail activity is lifting and consumer confidence is more upbeat. That doesn’t mean that there are no risks ahead – there always are. But the Reserve Bank Governor believes we are in a happy place.

What does the testimony reveal?

Economic outlook

  • “forecasts for the global economy haven’t changed much in recent months. If anything they have inched higher. They suggest that 2014 growth will be higher than in 2013, and at about average pace. More of the growth is coming from the advanced countries, and proportionately not quite so much from the emerging ones. That, too, is probably a welcome re-balancing in some respects after the weakness of the advanced countries in recent years.”

Terms of Trade

  • “Australia’s terms of trade have been little changed over the past year, though we still assume they will decline further in the future”.
  • “Export volumes for resources are growing strongly, as the capacity that has been put in place by the high levels of investment comes on line. For example, iron ore shipments have risen by about 85 per cent from their levels of five years ago, to around 1.5 million tonnes per day. They will rise further over the coming year or two”

Inflation

  • “the recent data show inflation in underlying terms at about 2½ per cent over the course of 2013, and a pace higher than that in the second half of the year. This is a change from the middle of last year, when we were receiving data that were lower than expected”.

Consumer demand

  • “Consumer demand has had a firmer tone over the summer, after a fairly lengthy period of more subdued outcomes. This is evidence in the retail trade and national accounts data and is confirmed in information from the Bank’s liaison.”

Monetary Policy Outlook

  • “At the present time we judge monetary policy to be doing the things it can reasonably be expected to do in the circumstances we face. We have signalled the likelihood, if the economy evolves more or less as expected, of a period of stability in the cash rate. As well as the low level of interest rates generally, a sense of stability should be of some help for businesses and households as they form their plans”.

Key aspects of the Q&A

  • Potential growth of the Australian economy is “3ish” – that is around 3.0-4.0% per annum
  • Stevens doesn’t believe that our slightly higher inflation rate compared with other countries has reduced competitiveness
  • Fall in competitiveness would be associated with weaker exchange rate
  • Competitiveness more a function of productivity, innovation etc
  • Annual growth of investor housing credit around 8-9% per annum is about “fast enough”
  • Total credit growth of 5-6% per annum is OK
  • Warns investors that house prices can fall as well as rise
  • Pickup in business investment would be welcomed
  • Stevens doesn’t express concern about extent of foreign investment in Australian real estate
  • Role of foreign investment in Sydney housing market “quite prominent indeed”
  • Stevens expects a pickup in productivity
  • Stevens emphasises that he sees stability in interest rates – not sure of period
  • Stable interest rates would be “quite helpful for people”
  • Stevens on Chinese data: “public commentaries frets too much about…monthly PMIs”
  • Stevens on Chinese investment in overseas property: reflects higher incomes in China and asset diversification
  • Question of the day: “What is jawboning?”
  • To counter declines in some industries, Stevens believes that Governments have role in promoting an environment of macroeconomic stability and fostering an environment of innovation and investment in skills.
  • The Reserve Bank Governor testifies to the House of Representatives Economics Committee twice a year.
  • Transcript of the Reserve Bank Governor’s opening remarks can be found here
  • The Reserve Bank is comfortably on the interest rate sidelines. We believe that a rate cut will only be needed if an unpredicted external shock hurts the global economy. Rather confidence levels are lifting; the housing market is strengthening; and downside risks have diminished. The Reserve Bank would be hopeful that the economy continues to lift in coming months, underpinned by super-low interest rates and momentum provided by home construction and sales.
  • The main game for the Reserve Bank is the changing of the baton of economic growth drivers from mining to other sectors of the economy. In particular the RBA will be closely assessing the shifts in the labour market landscape and non-mining business investment.
  • It is important to note that rates are at a super stimulatory level. And while the RBA maintains a cautious approach, rates are likely to lift by year end.

What is the importance of the report?

  • The Reserve Bank Governor testifies to the House of Representatives Economics Committee twice a year.
  • Transcript of the Reserve Bank Governor’s opening remarks can be found here

What are the implications for interest rates and investors?

  •  The Reserve Bank is comfortably on the interest rate sidelines. We believe that a rate cut will only be needed if an unpredicted external shock hurts the global economy. Rather confidence levels are lifting; the housing market is strengthening; and downside risks have diminished. The Reserve Bank would be hopeful that the economy continues to lift in coming months, underpinned by super-low interest rates and momentum provided by home construction and sales.
  • The main game for the Reserve Bank is the changing of the baton of economic growth drivers from mining to other sectors of the economy. In particular the RBA will be closely assessing the shifts in the labour market landscape and non-mining business investment.
  • It is important to note that rates are at a super stimulatory level. And while the RBA maintains a cautious approach, rates are likely to lift by year end.
]]>

Reserve Bank Governor Testimony

  • The Reserve Bank Governor has delivered testimony to the House of Representatives Economics Committee.
  • The Governor has delivered his clearest statement yet that the economy is lifting and the focus is now on ensuring that the inflation is contained, households don’t over borrow and, more importantly that growth is manageable.
  • The clear sense from today’s testimony to the Parliamentary Economics Committee is that Reserve Bank officials are extremely comfortable with current settings. “We have signalled the likelihood, if the economy evolves more or less as expected, of a period of stability in the cash rate. As well as the low level of interest rates generally, a sense of stability should be of some help for businesses and households as they form their plans”.
  • The tone and comments from the testimony is consistent with CommSec’s view that the cash rate will remain on hold until later in the year before lifting.

What does it all mean?

  • The Reserve Bank Governor has delivered his clearest statement yet that the economy is lifting and the focus is now on ensuring that the inflation is contained, households don’t over borrow and, more importantly that growth is manageable. The clear sense from today’s testimony to the Parliamentary Economics Committee is that Reserve Bank officials are extremely comfortable with current settings.
  • The Reserve Bank Governor’s commentary was similar to the Monetary Policy Statement released a fortnight ago. However his comments today provided more clarity and reinforced our view that interest rates are solidly on hold in the near term and likely to lift by the end of the year. Interestingly the question and answer time was a lot more insightful than the prior testimony in December where it was more dictated by political self-interest than macroeconomic interests.
  • There was a lot of robust discussion on a variety of issues ranging from the lift in house prices, the likely impact in housing affordability, China’s shadow banking system, the level of foreign investment and rather amusingly a question on what is “jawboning” in the context of the currency.
  • The forward-looking indicators across the economy are consistent with a lift in activity over coming months. The Governor made mention that while unemployment will continue to lift; it is a lagging indicator “tending to lag by 1-2 quarters”.
  • Interestingly the Governor discussed the “new normal” that we have noted in previous reports. Stevens indicates that current credit growth of 5-6% “is ok” and that it was unlikely “we will be going back to 15%-16%” credit growth. The Governor mentioned that household debt levels are high but not disastrous and a sedate level of credit growth would be the best outcome for a sustainable longer-term growth story.
  • The clear sense from today’s testimony to the Parliamentary Economics Committee is that Reserve Bank officials are comfortable with current settings. Interest rate settings are well below a “normal” or neutral setting, but they are about right for the times. It is clear that the Reserve Bank is well aware of the multispeed nature of the domestic economy and the super stimulatory environment was not only insulating the economy from the pullback in mining investment but also underpinning a lower currency – boosting exports.
  • Interestingly the Governor made the distinction with a wry smile that “jawboning” may be a fancy term given by market commentators to the Reserve Bank having a subtle view on the currency. In recent times the central bank has made it pretty clear that a lower Aussie dollar would be preferable in an effort to supporting activity. The Governor was pushed on the issue of surprisingly high inflation despite a weak labour market and he suggested that the current inflation landscape is a puzzle and there may be some “noise in the quarterly inflation read.
  • Overall it is clear the outlook for the economy has improved over the last few months. And while the growth in house prices has been unsettling from an affordability sense, it has lifted wealth levels and also supported confidence. Importantly the lift in dwelling approvals to record highs should ensure that more sedate price growth takes place over the second half of the year.
  • The impact that foreign residential property investment is having on inflating property prices was discussed and the Reserve Bank Governor mentioned that “in particular parts of our cities, the role of foreign investors is quite prominent indeed, but I suspect rather less prominent than some of the headlines might suggest”. It is likely to be a topic of future discussion and the Central Bank may provide further opinion on this issue.
  • The Reserve Bank Governor was asked about the role of macro prudential tools (such as mandating borrowers to have higher deposits before seeking home loans) to quell strong growth in house prices. The Governor said that it could be “a useful adjunct” to monetary policy but that we need to “go into this with a bit of realism”. Stevens noted that higher loan to valuation ratios could hurt first home buyers in particular. And this would have deeper ramifications of a political nature.
  • The Reserve Bank remains quietly confident that the Australian economy is on a sustainable recovery path. House prices are rising, share markets are healthier, population growth is strong, retail activity is lifting and consumer confidence is more upbeat. That doesn’t mean that there are no risks ahead – there always are. But the Reserve Bank Governor believes we are in a happy place.

What does the testimony reveal?

Economic outlook

  • “forecasts for the global economy haven’t changed much in recent months. If anything they have inched higher. They suggest that 2014 growth will be higher than in 2013, and at about average pace. More of the growth is coming from the advanced countries, and proportionately not quite so much from the emerging ones. That, too, is probably a welcome re-balancing in some respects after the weakness of the advanced countries in recent years.”

Terms of Trade

  • “Australia’s terms of trade have been little changed over the past year, though we still assume they will decline further in the future”.
  • “Export volumes for resources are growing strongly, as the capacity that has been put in place by the high levels of investment comes on line. For example, iron ore shipments have risen by about 85 per cent from their levels of five years ago, to around 1.5 million tonnes per day. They will rise further over the coming year or two”

Inflation

  • “the recent data show inflation in underlying terms at about 2½ per cent over the course of 2013, and a pace higher than that in the second half of the year. This is a change from the middle of last year, when we were receiving data that were lower than expected”.

Consumer demand

  • “Consumer demand has had a firmer tone over the summer, after a fairly lengthy period of more subdued outcomes. This is evidence in the retail trade and national accounts data and is confirmed in information from the Bank’s liaison.”

Monetary Policy Outlook

  • “At the present time we judge monetary policy to be doing the things it can reasonably be expected to do in the circumstances we face. We have signalled the likelihood, if the economy evolves more or less as expected, of a period of stability in the cash rate. As well as the low level of interest rates generally, a sense of stability should be of some help for businesses and households as they form their plans”.

Key aspects of the Q&A

  • Potential growth of the Australian economy is “3ish” – that is around 3.0-4.0% per annum
  • Stevens doesn’t believe that our slightly higher inflation rate compared with other countries has reduced competitiveness
  • Fall in competitiveness would be associated with weaker exchange rate
  • Competitiveness more a function of productivity, innovation etc
  • Annual growth of investor housing credit around 8-9% per annum is about “fast enough”
  • Total credit growth of 5-6% per annum is OK
  • Warns investors that house prices can fall as well as rise
  • Pickup in business investment would be welcomed
  • Stevens doesn’t express concern about extent of foreign investment in Australian real estate
  • Role of foreign investment in Sydney housing market “quite prominent indeed”
  • Stevens expects a pickup in productivity
  • Stevens emphasises that he sees stability in interest rates – not sure of period
  • Stable interest rates would be “quite helpful for people”
  • Stevens on Chinese data: “public commentaries frets too much about…monthly PMIs”
  • Stevens on Chinese investment in overseas property: reflects higher incomes in China and asset diversification
  • Question of the day: “What is jawboning?”
  • To counter declines in some industries, Stevens believes that Governments have role in promoting an environment of macroeconomic stability and fostering an environment of innovation and investment in skills.
  • The Reserve Bank Governor testifies to the House of Representatives Economics Committee twice a year.
  • Transcript of the Reserve Bank Governor’s opening remarks can be found here
  • The Reserve Bank is comfortably on the interest rate sidelines. We believe that a rate cut will only be needed if an unpredicted external shock hurts the global economy. Rather confidence levels are lifting; the housing market is strengthening; and downside risks have diminished. The Reserve Bank would be hopeful that the economy continues to lift in coming months, underpinned by super-low interest rates and momentum provided by home construction and sales.
  • The main game for the Reserve Bank is the changing of the baton of economic growth drivers from mining to other sectors of the economy. In particular the RBA will be closely assessing the shifts in the labour market landscape and non-mining business investment.
  • It is important to note that rates are at a super stimulatory level. And while the RBA maintains a cautious approach, rates are likely to lift by year end.

What is the importance of the report?

  • The Reserve Bank Governor testifies to the House of Representatives Economics Committee twice a year.
  • Transcript of the Reserve Bank Governor’s opening remarks can be found here

What are the implications for interest rates and investors?

  •  The Reserve Bank is comfortably on the interest rate sidelines. We believe that a rate cut will only be needed if an unpredicted external shock hurts the global economy. Rather confidence levels are lifting; the housing market is strengthening; and downside risks have diminished. The Reserve Bank would be hopeful that the economy continues to lift in coming months, underpinned by super-low interest rates and momentum provided by home construction and sales.
  • The main game for the Reserve Bank is the changing of the baton of economic growth drivers from mining to other sectors of the economy. In particular the RBA will be closely assessing the shifts in the labour market landscape and non-mining business investment.
  • It is important to note that rates are at a super stimulatory level. And while the RBA maintains a cautious approach, rates are likely to lift by year end.

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