Australia’s higher interest rates have been a huge draw card for foreign investment throughout the past 5 years of the GFC.
Despite certain media reports that Australia has now achieved the “safe haven” status among global investors (a statement that I don’t personally agree with), it’s the RBA’s sensible interest policy that has ensured that we remain an attractive investment destination for foreign capital starving for low volatility and more importantly, higher yield.
The Central Bank policies of the US and Europe, of flooding the market with cheap credit and forcing interest rate low for an extended period of time, is designed to force investors to take on risk and move their capital out of cash and into higher risk, higher yielding investments.
Despite what you may read and believe about the economic credentials of our country and the Australian dollars new “safe haven” status, the number one reason that global capital has continued to gravitate towards Australian shores, is the higher interest rates on offer in Australia, compared to the rest of the world.
If the RBA didn’t act so prudently over the past 5 years, and instead followed the desperate path of our overseas counterparts by flooding the economy with cheap credit, Australia could have found itself having to pay much higher interest rates to attract foreign capital, as it would have lost its current competitive advantage.
So be careful what you wish for and ask yourself, should our interest rates continue to drop as a means to spurring economic growth, at what point will Australia lose its appeal as an investment destination for foreign capital and what effect could it have on real interest rates, in the future ?
Con Katsiouras – Director
Folio Finance Pty Ltd