Borrowing Rates Lowest Ever

With the economic crisis all over the world, after more than a century, the borrowing rates are the lowest ever in Australia.

Reserve Bank Governor Glenn Stevens said the Commonwealth of Australia and the constituent states enjoy these low rates now. There is a growing concern on whether the Commonwealth should take advantage of this to start funding projects.

Foreign investors have found Australia’s government-issued AAA-rated bonds an alternative investment for their financial resources.

There is actually $238 billion worth of Commonwealth bonds being issued and $199 billion of which is held by foreign investors according to the Australian Office of Financial Management.

In fact, according to an economist, the government is actually able to get money at no interest.

New South Wales Treasury Corporation, Tim Hext explains that real yields for 2020 are at 20 basis points.

Despite this, however, there is hesitation in borrowing money to engage in infrastructure ventures.

Deloitte Access Economics’ Chris Richardson explains that politics come into play. Prime Minister Julia Gillard has promised to save on surplus as the election year grows near.

According to Paul Bloxham, another issue that needs to be taken into consideration is capacity constraints. Bloxham is chief economist from HSBC Australia.

The current interest in mining investment if coupled with other major projects can push out private investments. Capital and labor may be hard to come by with so many projects happening all at the same time.