Interest rates are likely to remain at record lows and to drive an increase in business investment, according to the Reserve Bank of Australia.

Governor Glenn Stevens told the House of Representatives Standing Committee on Economics that investment levels were below par, despite record-low cash rate.

However, he said that was “pretty normal at this point of the cycle”, and that it was reasonable to expect this would change.

“Not only are funding costs low, but banks want to lend and are competing to do so more actively than they have for some years,” he said.

Net worth per household has also risen by about $120,000 over the past two years, while the community’s monetary assets have risen by about 13%, he added.

Mr Stevens told the committee that consumer spending was likely to grow in line  with income, or perhaps a little faster.

“But it seems unlikely that households will revert to their behavior of a decade ago, when they were expanding their balance sheets quickly, saving much less of their incomes and increasing their consumption well ahead of the growth in incomes,” he said.

Meanwhile, the Reserve Bank has revealed that the official cash rate will remain at 2.5% for the foreseeable future, according to the minutes of the August meeting.

“The board judged that monetary policy was appropriately configured and that, on present indications, the most prudent course was likely to be a period of stability in interest rates,” the minutes said.

The board noticed that the housing market remained “strong”, prices were “robust” and residential approvals were at a “high level”.
“Average lending rates on housing and business loans in Australia continued to edge down over July, mainly owing to the ongoing replacement of more expensive fixed-rate and discount variable-rate loans from previous years,” the board said. “Overall, cumulative movements in interest rates since the start of the year amounted to a noticeable easing in financial conditions.”

John can be contacted on 0749722081 or 0410433919.  or email him at jwhitten@ihl.net.au or net www.ihl.net.au. John Whitten is a credit representative (CRN 399796) of BLASSA Pty Ltd (Australian Credit Licence No 391237).