Take advantage of low interest rates, governor urges

By Cameron Micallef

October 31 2019
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The Reserve Bank of Australia has told investors to stop waiting for zero interest rates and take advantage of the current record-low interest rates through investment.

In a speech made at the Australian National University, the RBA’s governor, Dr Philip Lowe, told businesses the current environment could be as good as it gets so it’s time to spend now.

“At low interest rates, many investments that didn’t make sense at higher interest rates should now make sense,” Dr Lowe said.

This is especially so for investments with long-term payoffs, because future returns no longer need to be discounted as highly. This means that low interest rates give us the opportunity to lengthen our horizons and think about projects with really long-term payoffs.

While alluding to the Reserve Bank of Australia’s wiliness to further ease credit, he all but ruled out rates falling below zero and reiterated the need for spending.

“The board is prepared to ease monetary policy further if needed. Having said that, it is extraordinarily unlikely that we will see negative interest rates in Australia,” Dr Lowe said.

The flow-on effect from lower interest rates being higher asset prices and debts are not a concern for the central bank, which indicated rising housing prices are not a problem unless they pick up a lot.

“Credit growth is modest, investor credit growth is still negative, so the outstanding credit owed by investors is still declining and credit growth to owner-occupiers is only modest.”

“That’s our main focus on what is going on with credit growth and not what is going on with the asset prices per se,” Dr Lowe continued.

The governor pointed out that other major economies, including Germany, France and Japan, are issuing largely negative bonds.

While refusing to say Australia will follow, the governor was quick to point out that Australia will need to keep rates low for an extended period of time to reach its inflation target of 2-3 per cent.

While conceding interest rates will remain low for an extended period of time, the governor believes monetary policy has helped the Australian economy.

“Over the course of this year, we have lowered interest rates three times to a record low of three-fourth per cent. We are confident that these reductions are helping the Australian economy and supporting the gentle turning point in economic growth,” Dr Lowe concluded.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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