7 tips to stop you under-charging and over-servicing

By Flying Solo contributor Kathryn Williams

Over-servicing clients is a common problem for small business owners; we feel it’s what sets us apart from our competitors. All it’s doing, however, is creating unreasonable expectations, and costing us money to boot.

We know we can deliver what our clients need.

And because we do this for a living, we should know how to price, and manage the deliverables – right?

So why do we spend so much time on over-servicing and over-delivering?

  • Do we think our client will pay us more?

  • Did we get our pricing wrong?

  • Or are we inefficient?

As soloists, it is our responsibility to manage our time professionally and efficiently. Why? Because most of us are billing by the hour. While unbillable work is unavoidable, too many of us are spending the bulk of our days on it.

“While unbillable work is unavoidable, too many of us are spending the bulk of our days on it.”

What are the costs of this?

The opportunity costs, and the risks, when we spend more time than we get paid for, include:

  • The client becomes accustomed to receiving a higher level of deliverable for that particular fee, which ultimately sets incorrect expectations, and sets a bad precedent for the whole industry.

  • We are too busy working on non-billable work, to spend time working on new business opportunities.

  • Rather than working on delivering jobs for not enough money, it would be better to invest this time in managing qualitative and quantitative post-mortems of job results, to learn how to improve.

  • We are too busy to engage in important and necessary social/communication connections and networking and building relationships with our clients, and prospects.

We all have the same amount of time in a day, how you choose to ‘spend’ it, and how you choose to manage it – is where YOU make the difference.

Here are seven tips for managing over-servicing

  1. Ask clients for more, more often. When there is ‘scope creep’, project costs need to be renegotiated.

  2. Invest 10% of over-servicing time toward client management/retention activities, rather than over-servicing a job per se. Instead of over-servicing on jobs which fade into the past, the best way to grow your business is through client retention. So remember to say ‘thank you’, acknowledge magic moments, and show your clients that they are valued and important.

  3. Invest another 10% into reviewing current job progress, qualitative and financial metrics, and important end-of-job Return On Investment (ROI) and ‘success’ metrics for both parties.

  4. If an opportunity has potential for showcasing your work – invest time to enter industry awards; and also client industry recognised events.

  5. Invest 10% in business development activities, a core part of your business growth strategy.

  6. Invest 10% in yourself – industry training, networking, and developing social connections and networking.

  7. Invest in your business tools and automation – job management solutions, benchmarks and a dashboard, which will allow you to track and monitor results. Remember you can’t manage what you can’t measure! You ultimately need live, up-to-the-minute data to manage time and stop over-servicing in its tracks.

Don’t blame the client for your over-servicing

Be crystal clear (and honest) about how much you over-service each month and be conscious of how you allocate and manage your most precious resource.

By taking on board even just one or two of the tips above, you can reduce over-servicing to an acceptable tolerance level, and establish a conscious and continual practice of achieving operational excellence.

If you would like to discuss anything in this article, please call us on |PHONE|.

 

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This article by Kathryn Williams is reproduced with the permission of Flying Solo – Australia’s micro business community. Find out more and join over 100k others by visiting www.flyingsolo.com.au.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

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A vital SMSF question: A corporate trustee or individual trustees?

A self-managed super statistic that doesn’t seem to change much over the years is the strong preference of new SMSFs for individual trustees rather than a corporate trustee.

The latest-available tax office statistics on SMSF trustee arrangements show that 93 per cent of SMSFs established in 2015-16 had individual trustees – a percentage that has remained more or less static in recent years. Yet 77 per cent of all SMSFs in existence at June 2016 had individual trustees – again a percentage that has remained rather static.

Looking at this from another way, a third of all SMSFs have corporate trustees against just 7 per cent for new SMSFs.

There are perhaps some straightforward explanations for these trustee differences between fledgling and established self-managed funds.

Individual trustee arrangements – with all members individually being trustees – are typically less-costly and simpler to put in place when a fund is being setup.

Yet the statistics suggest that as time goes on, many SMSF members either recognise the potential greater flexibility of having a corporate trustee or a change in their circumstances necessitates a switch to a corporate trustee.

Depending upon their circumstances, some informed would-be SMSF members may decide to bite the cost-and-convenience bullet early and go with a corporate trustee from the beginning. It could be worthwhile gaining advice about the issue from an SMSF specialist.

Let’s run through some of the basic rules regarding trustees for self-managed, which should be understood by all intending and existing SMSF members.

Under superannuation law, all members of an SMSF must be either individual trustees or directors of a corporate trustee of the fund. An SMSF with individual trustees must have at least two individual trustees yet a corporate trustee can have only one director.

An SMSF with individual trustees are held in the names of individual members as trustees. If the membership of an SMSF with individual trustees changes – perhaps following death, marriage breakdown or the addition of a new member such as an adult child – the names on the funds’ ownership documents must also change. This can be costly and time-consuming.

By contrast with a corporate trustee, assets are held in the name of a company as trustee. If trustee directors change, the assets remain in the name of the same company.

If a fund has, say, two individual trustees and one dies, the fund must appoint another trustee in order to continue as an SMSF. (This is because of the requirement that a fund must have at least two individual trustees.) Yet if an SMSF has a corporate trustee, a deceased trustee director may not have to be replaced because a corporate trustee can have a single director.

In short, a corporate trustee will continue to control an SMSF and its assets after the death or incapacity of a member. This is a key estate-planning consideration.

The decision about whether to have a corporate trustee or individual trustees could have financial and personal implications for as long as an SMSF remains in existence, including when a member leaves the fund and/or a new member joins.

Unfortunately, some SMSF members may not understand the differences between having individual trustees or a corporate trustee until it is too late.

For more information about SMSFs please contact us on |PHONE|.

 

Source:

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2017 Vanguard Investments Australia Ltd. All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

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More withdrawals from ‘the bank of mum and dad’

Think about what has happened in the six months since Treasury secretary John Fraser spoke of his concerns for retirement savings of parents who help their children into housing by making withdrawals from “the bank of mum and dad”.

House prices in Sydney and Melbourne have continued to accelerate and, anecdotally at least, so has parental financial assistance with their children’s first home.

Fraser is worried that helping children into costly housing, as homebuyers or tenants, may inhibit their own abilities to save for retirement, including through their super.

Parents can find themselves trying to cope with something of a balancing act: trying to save to finance their own retirement and understandably wanting to help their children into the high-cost housing market.

It is difficult to gain other than an anecdotal impression of just how much parents nearing retirement or already in retirement are helping to finance their adult children’s housing – particularly with that elusive deposit on first homes.

Clearly, a growing personal financial issue is whether parents can afford to provide this financial assistance given their circumstances.

Perhaps an appropriate starting point for parents is to realistically assess the adequacy of their retirement savings and overall financial position, perhaps with the assistance of an adviser who understands their family circumstances.

Much-publicised high levels of home ownership among older Australians can lead to inaccurate conclusions about the state of their financial wellbeing.

The Australian Bureau of Statistics reports that close to 80 per cent of households aged over 65 “own” their homes, based on the Commonwealth Census. However, these particular statistics do not make a distinction between “home owners” who own their homes outright and those with outstanding mortgages.

And the Reserve Bank observed almost two years ago in a submission to a Senate committee inquiry on home ownership that “older age groups are now less likely to own their home outright than in the past”.

The much-quoted retirement standard from the Association of Superannuation Funds of Australia (ASFA) – providing estimates of living costs for retirees to meet different standards of living – is calculated on the basis that retirees own a home with no outstanding mortgage.

Ideally, we would enter retirement as debt-free homeowners with sufficient retirement savings to finance a satisfactory lifestyle – with perhaps enough money left to assist our children into a first home.

There’s much to think about before making withdrawals from “the bank of mum and dad”.

If you would like to discuss anything in this article, please call us on |PHONE|.

 

Source:

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.
Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2017 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

 

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Is Australia the New Argentina?

By Bob Cunneen, Senior Economist and Portfolio Specialist, MLC

“Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.”

Groucho Marx

“One of Australia’s most important national assets is our institutional arrangements: things like the rule of law, our strong and credible institutions, and our stable political system.”1

Reserve Bank of Australia Deputy Governor, Dr Philip Lowe, 12 August 2015.

The Winners Curse

Australian investors have been historically blessed with good fortune compared to others. Australian shares have delivered strong returns in terms of capital growth and dividends over the past century. Over the 115 years since 1900, Australia has been the second-best performing equity market with a real return of 7.3% per year.2

For the past 25 years, Australia has seen continuous economic growth and a solid financial system. Australia’s population is growing and the labour force is highly skilled. Australia’s natural resources – iron ore, coal, industrial metals and land – have been key sources of export income. While there has been some sharp setbacks in the recent past – the Asian Financial Crisis (1997-98) and the Global Financial Crisis (2007-09) being notable – Australia has managed to come through these events with remarkable resilience. This past success reflects both individuals and institutions that have proven flexible and policymakers who were agile.

The Leadership revolving door

Yet Australia’s prosperity is now being challenged by increasing political risk. Political risk can come in various forms. These political risks can range from sudden leadership switches and significant policy changes to the more extreme examples of conflict and revolutions that dramatically alter the political order. Fortunately in Australia’s case, we are not considering the dramatic political risk that involves violence. Here the more modest form of political risk in leadership and policy changes are considered. Australia has been prominent in this moderate political risk spectrum.

The clearest example of Australia’s political risk is the revolving door of the Prime Minister’s office. For the period 2010 to 2015, Australia had five Prime Ministers in the poetic sequence of: Rudd, Gillard, Rudd, Abbott, Turnbull. Chart 1 shows how Australia rivals Italy and Greece in terms of political turnover at the top.

Considering that both Italy and Greece have struggled over the past decade with stagnating economies and high unemployment, Australia has achieved a remarkable place on this leadership instability podium.

Chart 1: Number of changes to political leadership by country between 2010 and 2015

Source: NAB Asset Management.

With sharper swings in policy uncertainty

Political risk is also evident with the increasing uncertainty over Australia’s economic and regulatory policy. Investors face considerable challenges in assessing the likely policy agenda of governments when the willingness to implement their policy agenda is hostage to opinion polls and media commentators.

A notable measure of this is the ‘Economic Policy Uncertainty Index’ (EPU) which counts newspaper articles which include words such as “uncertainty”, “economy”, “regulation” and “taxation”.3 Chart 2 shows occasional spikes in the EPU Index for Australia which may be in response to a major global crisis, such as the GFC, or a specific domestic event, such as the federal election which is held in Australia every three years. However the more ominous signal is not these temporary spikes in “uncertainty”, but rather that the average level of the EPU has risen since 2008. This suggests that Australia’s “policy uncertainty” has increased materially.

Should investors worry about this heightened “policy uncertainty”? Yes. A ‘Working Paper’ released by the International Monetary Fund (IMF) looked at 169 countries over the period 1960 to 2004 and found that “higher degrees of political instability are associated with lower growth rates of GDP per capita”.4 This same research also highlighted that political instability affects economic growth “by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation”.

Chart 2: The Economic Policy Uncertainty Index for Australia

Source: Economic Policy Uncertainty, as at 28 February 2017.

But not quite yet Argentina

Argentina is a prime example of how political instability can play havoc with economic prosperity. Argentina has had a “century of decline” relative to other countries according to The Economist.5 Various reasons are given for Argentina’s demise – the “pendulum” of policy changes from intervention to liberalisation, the prevalence of “short-termism” as well as the high dependence on commodity exports. Interestingly, The Economist compared Argentina’s historical woes to Australia’s achievements over the past century and complimented Australia for having “institutions to balance competing interests”. Yet this charitable assessment of Australian politics in 2014 is now difficult to reconcile with the inability to achieve federal budget repair, the focus on opinion polls and the pantomime of Parliament’s question time. Australia is certainly not yet Argentina, but the symptoms of political risk  are emerging.

Australia’s political fragility may only become evident over an extended period. Australian asset classes could face the “boiling frog” scenario – when the political temperature becomes progressively warmer until consciousness is completely lost and investment returns become terminal. Australian investors need to consider global diversification given this increasing political risk. Essentially “patriotism is the last refuge of the scoundrel” as well as the prudent investor.6

If you would like to discuss anything in this article, please call us on |PHONE|.

 

1.National wealth, land values and monetary policy’ speech, Reserve Bank of Australia Deputy Governor, Dr Philip Lowe, 12 August 2015.

2. ‘Credit Suisse global investment returns yearbook 2015’, Credit Suisse, February 2015. Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.

3. ‘Economic Policy Uncertainty Index for Australia’, Economic Policy Uncertainty.

4. ‘How does political instability affect economic growth?’, Aisen A and Veiga F, IMF Working Paper, January 2011. Note the views expressed in this Working Paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the authors and are published to elicit comments and to further debate.

5. ‘A tragedy of Argentina: A century of decline’, The Economist, 17 February 2014.

6. ‘Patriotism is the last refuge of the scoundrel’, Pronouncement, Johnson S (1709-1784). 

Important information

This publication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (MLCI) a member of the group of companies comprised National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686), its related companies, associated entities and any officer, employee, agent, adviser or contractor therefore (‘NAB Group’). Any references to “we” include members of the NAB Group. An investment in any product or service referred to in this publication does not represent a deposit or liability of, and is not guaranteed by NAB or any other member of the NAB Group.

This information may constitute general advice. It has been prepared without taking account your objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.  

Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.  

This information is directed to and prepared for Australian residents only.

Any opinions expressed in publication constitute our judgement at the time of issue and are subject to change. Neither MLCI nor any member of the NAB Group, nor their employees or directors give any warranty of accuracy, not accept any responsibility for errors or omissions in this publication.

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Your first SMSF portfolio: Don’t overlook fundamentals amid super changes

New SMSF trustees face something of a double challenge in 2017-2018: Coming to terms with the long-standing fundamentals of having your own fund together with the biggest changes to super in a decade.

It is critical for new trustees not to neglect any of the fundamentals of self-managed super in their efforts to understand the changing super system from the beginning of July. (See A critical time for specialist advice, Smart Investing, December 2, 2016.)

The first few months of a new financial year are among the most popular times to establish an SMSF. Often, investors aim to begin their self-managed approach to super with a fresh start for a new financial year and to spread their administration costs over the entire 12 months rather than part of a year.

And in many cases, members switching from large APRA-regulated funds would time their setting-up of their SMSFs with their retirement at the end of a financial year or relatively early in a new financial year.

If you are aiming to setup an SMSF from the beginning of 2017-18, preparations obviously should begin well in advance.

Fundamentals for would-be SMSF trustees to begin thinking about now include:

Setting a compulsory investment strategy

SMSF trustees are legally required to prepare, implement and regularly review an investment strategy that has regard to the whole circumstances of their fund. These circumstances include: investment risks, likely returns, liquidity, investment diversity, risks of inadequate diversity and ability to pay member benefits. (The SMSF Association offers a free course for SMSF trustees.)

Investing within the rules

Trustees must maintain a super fund for the sole purpose of providing member retirement benefits; not provide loans or financial assistance to members or their relatives; separate SMSF assets from their own personal or business assets; conduct transactions on an arm’s length basis; and adhere to the investment restrictions under the in-house asset rule*.

Choosing an SMSF’s strategic asset allocation

A portfolio’s asset allocation – the proportions of its total assets that are invested in different asset classes of mainly local and overseas shares, property, fixed interest and cash – spreads risks and opportunities. Research has long found that a diversified portfolio’s strategic asset allocation is responsible for the vast majority of its return over time.

Selecting investments within an SMSF’s strategic asset allocation

SMSFs often adopt a “core-satellite” approach to invest in accordance with their asset allocation. With this strategy, the core of their portfolio is held in low-cost traditional index funds or exchange-traded funds (ETFs) tracking selected indices with smaller “satellites” of favoured direct securities and/or actively-managed funds. As the Vanguard/Investment Trends 2016 Self Managed Super Fund Report shows, SMSFs are among the biggest and longest supporters of ETFs.

Deciding whether to take specialist SMSF advice

Most SMSF trustees receive some professional guidance ranging from administration services up to full financial planning. And specialist SMSF advice can be particularly valuable when a fund is being established.

For the past 16 years or so, Vanguard analysts have studied “adviser’s alpha”. This is the value that advisers can add through their wealth management and financial planning skills – guiding their clients in such areas as asset allocation, cost and tax efficiency, and portfolio rebalancing – and as behavioural coaches.

Skilled advisers can add considerable value by using skilful wealth-management practices together with personally encouraging their clients to adopt disciplined, long-term approaches to investing.

New SMSF trustees in 2017-18 will be joining a force of around 600,000 SMSFs with more than $600 billion in assets.

If you would like to discuss anything in this article, please call us on |PHONE|.

 

* Under the in-house asset rule in superannuation law, an SMSF is generally prohibited from making loans, providing leases or having investments with related parties and entities that exceed 5 per cent of its total asset value. Certain exceptions apply including business property.

 

Source: 

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2017 Vanguard Investments Australia Ltd. All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

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Almost the world’s best for retirees

What are the best countries for a comfortable retirement? What countries have the best retirement-income systems? It seems the answers to these questions are rather positive for Australian retirees.

The recently-published 2017 Best Countries survey from US News & World Report, BAV Consulting and the Wharton School at the University of Pennsylvania ranks Australia as the world’s second-best country for a comfortable retirement – behind New Zealand and ahead of Switzerland, Canada and Portugal in the top five.

Survey respondents aged 45 years and up ranked the best countries for retirement on seven attributes: affordability, favourable tax environment, friendliness, “a place I would live”, pleasant climate, respect for property rights and a well-developed public health system.

The questions were asked in the context of where a person would consider moving to upon retirement if cost were no object. It is worth noting that the Best Countries survey did not seek views about the adequacy of a country’s retirement-income systems.

Up to approximately 21,000 survey participants from around the world were asked to grade countries under such headings as best countries overall (Australia came eighth with Switzerland taking first place), best countries for women (Australia sixth), quality of life (Australia fourth), best countries to invest in (Australia 22nd) and best countries for a comfortable retirement.

The latest Melbourne Mercer Global Pension Index, as discussed by Smart Investing late last year, once again ranked Australia’s retirement-income system third out of 27 countries assessed (accounting for 60 per cent of the world’s population) in terms adequacy, sustainability and integrity. While Australia was given a B-plus, the front-runners – Denmark followed by the Netherlands – received A grades.

Australia’s high rating in the pension survey was largely due to our “robust” superannuation system and Government-funded age pension, but “there was work to be done” to achieve an A grade.

Irrespective of each country’s social, political, historical and economic influences, the pension report stresses that many of their challenges in dealing with an ageing population are similar. These include encouraging people to work longer, the level of retirement funding and reducing the” leakage” of retirement savings before retirement.

Although the suggestions of the Global Pension Index are directed mainly at government and the pension/retirement sectors, individuals may pick up useful personal pointers from most of its suggestions to, perhaps, discuss with a financial planner. In other words, consider taking a personal perspective on this global retirement-incomes challenge.

These personal pointers may include:

  • Think about whether to work until an older age than initially intended. The longer a person remains in the workforce, the greater the opportunity to save for what will be a shorter and therefore less-costly retirement. (An individual’s ability to work longer will much depend, of course, on personal circumstances including health and employment opportunities.)

  • Try to save more in super within the annual contribution caps. And if self-employed, consider making voluntary super contributions. Unlike employees, the self-employed in Australia are not required to save in super.

  • Think carefully before accumulating pre-retirement debt with the purpose of repaying it with super savings – it could reduce your standard of living in retirement. This is part of the pre-retirement “leakage” referred to by the Global Pension Index.

  • Take your superannuation pension rather than a lump sum upon retirement if possible. This will keep your savings in the concessionally-tax or tax-free super system for longer and, most importantly, make your retirement lifestyle as comfortable as possible for as long as possible. The report for the Global Pension Index suggests that one possible way to improve Australia’s retirement-income system might be to compel super members to take part of their super as a pension.

It’s comforting that thousands of people around the world regard Australia as one of the very best places for a comfortable retirement if they could afford to shift to another country after leaving the workforce and cost was not a barrier. And it must provide a degree of comfort that Australia’s retirement-income system is “relatively well placed” in the worlds of the Global Pension Index.

Unfortunately, other research has long shown that a large proportion of Australians have inadequate – often grossly inadequate – retirement savings.

As global retirement-income systems grapple with the demographic shift of an ageing population with declining birth rates and seemingly ever-greater longevity, individuals should be doing as much as they can to maximise their own retirement savings.

If you would like to discuss anything in this article, please call us on |PHONE| or email |STAFFEMAIL|.

 

Source: 

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2017 Vanguard Investments Australia Ltd. All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

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May 2017 Statement by Philip Lowe, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

Interest rates on hold

There has been a broad-based pick-up in the global economy since last year. Labour markets have tightened further in many countries and forecasts for global growth have been revised up. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia’s national income. Australia’s terms of trade have increased, although some reversal of this is occurring.

Headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices. Core inflation remains low. Long-term bond yields are higher than last year, although in a historical context they remain low. Interest rates have increased in the United States and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively.

The Bank’s forecasts for the Australian economy are little changed. Growth is expected to increase gradually over the next couple of years to a little above 3 per cent. The economy is continuing its transition following the end of the mining investment boom, with the drag from the decline in mining investment coming to an end and exports of resources picking up. Growth in consumption is expected to remain moderate and broadly in line with incomes. Non-mining investment remains low as a share of GDP and a stronger pick-up would be welcome.

Indicators of the labour market remain mixed. The unemployment rate has moved a little higher over recent months, but employment growth has been a little stronger. The various forward-looking indicators still point to continued growth in employment over the period ahead. The unemployment rate is expected to decline gradually over time. Wage growth remains slow and this is likely to remain the case for a while yet.

The outlook continues to be supported by the low level of interest rates. Lenders have announced increases in mortgage rates, particularly those paid by investors and on interest-only loans. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Inflation picked up to above 2 per cent in the March quarter in line with the Bank’s expectations. In underlying terms, inflation is running at around 1¾ per cent, a little higher than last year. A gradual further increase in underlying inflation is expected as the economy strengthens.

Conditions in the housing market continue to vary considerably around the country. Prices have been rising briskly in some markets and declining in others. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. Growth in housing debt has outpaced the slow growth in household incomes. The recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Enquiries

Media and Communications
Secretary’s Department
Reserve Bank of Australia
SYDNEY

Phone: +61 2 9551 9720
Fax: +61 2 9551 8033
Email: rbainfo@rba.gov.au

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