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RBA Reserve Bank Interest Rate Decision for August 2014?
Increase by 25 basis points 1 (5.6%)
Hold cash rate steady at 2.5% 14 (77.8%)
Decrease by 25 basis points 3 (16.7%)
Total Votes: 18
RBA Reserve Bank Interest Rate Decision for August 2014?
Topic Started: 7 Jul 2014, 01:56 PM (3,179 Views)
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It's crunch time for the RBA

Mon, 07 Jul 2014 | Stephen Koukoulas

It is crunch time for monetary policy in Australia with the data flow between now and the 5 August meeting of the RBA Board to largely determine whether it will cut interest rates or not.

This Thursday, the labour force data are published and another weak month for job creation (note employment is up a tiny 5,500 in the last two months) and / or a tick back up in the unemployment rate towards 6 per cent would suggest the nice spurt to economic growth and jobs in the March quarter was more a blip than a trend.

On 23 July, the June quarter inflation data are released and after a low reading for the March quarter, a further gain of around 0.5 per cent would be hinting strongly that inflation is likely to ease back to within the 2 to 3 per cent band by the end of 2014. The outlook for lower inflation is enhanced by the still strong Australian dollar and the fact that wages growth is meandering at record low levels. Softer economic growth is also a disinflationary factor.

But before the RBA Board sits down to its iced vovos and early grey tea next month, it will also have the next run of data on building approvals and retail trade, both of which have been trending down in the last few months. Indeed, the retail trade data are so disconcerting that when the ABS release the June data, on the day before the August RBA meeting, that real growth in retail spending will be down for the quarter.

It is probably too much to think the RBA will be cutting interest rates in August but the dovish statement after last week's Board meeting, plus the run of comments from Governor Glenn Stevens suggests rate cuts could well be on the table, especially with a couple of soft data results over the next few weeks.

Read more: http://thekouk.com/blog/it-s-crunch-time-for-the-rba.html#.U7oGMRDCelV
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stinkbug
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I'm still thinking no changes until next year at the earliest.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Interest rates at the right setting

July 2, 2014
Mark Bouris

So where are we with property? In the financial year to June 30, RP Data believes that Australian capital city dwelling values grew by 10.1 per cent, or a dollar-value increase of about $47,000 a property.

The stand-out for capital gains was Sydney, which rose 15.4 per cent (around $85,000 a house). But this rise is in the context of a long-term performance for Sydney of around 3.4 per cent a year over the decade. Melbourne’s dwelling values were up 9.4 per cent for the EOFY, an average dollar value gain of around $38,000 a home. Brisbane’s values rose 7 per cent, followed by Darwin at 5.7 per cent, Perth at 5.2 per cent, Adelaide and Canberra at 2.9 per cent and Hobart at 2.5 per cent.

With inflation tracking at 2.9 per cent, Hobart dwelling values have declined, while Adelaide and Canberra values are virtually flat. So of the eight capital cities, three hardly make it into positive gains territory. And the high prices in Sydney and Melbourne will likely mean lower gains there next year, as buyer demand is already slowing.

What is interesting is the low gross rental yields in the Melbourne (3.4 per cent) and Sydney (3.8 per cent) markets. So expect to see investors migrating to Brisbane, with dwelling values still below the previous 2009 peak and rental yields at 4.6 per cent gross for houses and 5.4 per cent for units. I would call this a positive property market, with big gains in Sydney and flat spots in other cities. So why are some economists looking at New Zealand and the United Kingdom’s regulation to limit low-equity loans and therefore cool the housing market?

In Australia we have a property market that has responded to very low interest rates, and it will continue to respond to a combination of interest rates, prices and sentiment. I think the Reserve Bank has interest rates on the right setting for now.

Read more: http://www.smh.com.au/money/borrowing/interest-rates-at-the-right-setting-20140703-zstn6.html
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jrsnr
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i think RBA will hold steady until later in the year, probably give a rate cut as a last ditch effort in the lead up to the christmas season and hopefully appease the gods of commerce.
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Gossamer
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44th most prolific poster on APF

No change.
Common sense is a curse - those who have it need to suffer dealing with those who don't have it.

APF idiot list
Nelson
Black Panther
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Vaucluse
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no change.
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newjez
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I voted for a decrease. Maybe not this time, but I'm thinking next move is down.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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Lou Ellen
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Bond spreads between Australia and the US have been tightening considerably. This has in part been because US prospects have risen and also because Australia’s have been fading, most notably over Q2, during which growth crashed from Q1′s cracking pace.

There are a lot of inputs into the national bond rate one very important one is the cash rate and note how its anticipates and then falls through the easing cycle then anticipates its reversal. It sure isn’t signaling that the cycle is over now though whether it’s pricing another cut is up for grabs, especially given the external environment of the dash for trash in higher yielding bonds squashing spreads all over.

Clearer evidence of markets pricing in more easing is to be found in the Credit Suisse index of interest rate prospects overt the next year (CS1Y). It has also recently been revving up (or down rather) for another cut.

It’s along way from the rate hike hysteria of April and recently broke to its lowest point in 18 months. Yesterday it bounced back on the NAB survey to be forecasting 6bps of cuts in the next 12 months.

I forecast an October cut and can’t see it happening earlier at this stage. Business sentiment seems to be holding up in the face of a busted consumer (surveys are mixed) and will take time to erode. It also takes a while for the income impacts of the terms of trade crunch to filter through the economy. As well, we’re going to need to see a few more months of weakening labour market outcomes as the capex cliff begins to accelerate and for house prices to cool.

The next CPI release is later this month and should show easing price pressures in the internals. But the headline rate it’s likely to be firm given the quarterly numbers.

The June CPI number will see another 0.4 reading drop out from last year so it’ll need to be replaced by a very low number not to boost the headline number above 3%. However, tradable inflation should be peaking and ready to fall as the strong dollar has had its way through Q2.

So the RBA will be able to argue it has the scope for more easing, especially with the carbon price being scrapped and disinflation in the pipe. But the August meeting is also too early because the bank will need to prepare the ground a little. It’s next Statement on Monetary Policy (SoMP) is August 8th, following that month’s meeting, so September is the earliest.

Second quarter national accounts are out September 3rd, the day after the RBA meeting for that month. Weakness will be a trigger for action. GDP is made of six major components and Q2 is shaping up poorly on all fronts.

Government final consumption expenditure (GFCE)
Household final consumption expenditure (HFCE)
Gross fixed capital formation (GFCF) – public
Gross fixed capital formation (GFCF) - private
Inventories
Net exports

The first two are measures are of straight consumption based upon volumes. The signs for households were weak before the Budget and awful after it. Government is unpredictable but is also probably weak as state and federal budgets remain tight.

The second two measures are of investment. Again, government is probably weak and private will be very weak as the capex cliff steepens with some modest offset in housing.

Inventories have been falling and may rise a little lending support, but who knows.

The big difference from Q1 will be net exports, which also measures volumes, and contributed 1.3% to first quarter GDP but will likely be flat at best if the trade deficit is anything to go by.

In short, Q2 national accounts could shake things up for all concerned and prepare the ground for a rate cut the following month.

The great unknown at this point is house prices. If they take off again then the RBA will be snookered even though the consumer is likely to remain weak.

In conclusion, my base case remains the RBA bears-up its SoMP forecasts in August, relaunches its easing bias in September and cuts in October.

A second possible scenario, if the RBA manages to hang onto its great hold, is that the MYEFO in December delivers another round of big Budget write downs (they are nearly certain at this point) and more austerity to boot, spoiling Christmas and locking in a cut early in the new year.
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Blondie girl
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Nothin
Till
Later....

I was hoping this October nup no it's not going to happen.
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$
It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged
Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do.
Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
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A confidence killer for Australian households

Callam Pickering

The budget continues to weigh on consumer confidence, with measures of consumer sentiment rebounding only modestly in the past two months. Rather than representing a temporary overreaction to the budget, which has occurred in the past, it is becoming increasingly obvious that households are poorly placed as we enter the second half of 2014.

The Westpac-Melbourne Institute consumer sentiment measure rose by 1.9 per cent in July but the modest rebound has been disappointing to date. It recovered only a small portion of the 6.8 per cent decline in May. The results are broadly consistent with the weekly ANZ-Roy Morgan measure of consumer confidence.

Consumers reacted strongly to a budget that featured a range of unpopular measures that slashed welfare and increased the costs of education and healthcare. It is not unusual for households to have a strong reaction to the budget -- and normally it is quite negative -- but typically sentiment has rebounded quite quickly.

By Australian standards, this budget was a bit different. It was the first budget that addressed our long-term fiscal challenge, implicitly recognising that it was no longer possible to run a surplus without shared sacrifice. It was not an easy budget to spin.

Unfortunately, shared sacrifice turned out to mainly refer to the young and low-income earners; two groups who are particularly sensitive to changes in their income. These groups were sacrificed so that the Coalition could wind back the mining and carbon taxes, while introducing Prime Minister Tony Abbott’s unpopular paid parental leave scheme.

The result was a storm of resentment across the country, which has seen Abbott’s popularity plummet. If that was the end of it, then it would be no big deal, but declining sentiment is having a very real effect on household spending.

Retail sales fell by 0.5 per cent in May, which was the second consecutive monthly decline in spending (A household spending slowdown is squeezing the economy, July 3). It might simply be a coincidence but spending began to decline around the time that content in the budget began to leak.

Household spending was already primed to soften, with growth running at an unsustainable pace throughout the second half of 2013. But spending slowed a little quicker than I initially expected. The federal budget appears to be the straw that broke the camel’s back.

Only a few months ago, markets were talking about when the Reserve Bank of Australia would raise rates. Recently I shifted my outlook from an easing bias to advocating one before the end of the year (How the RBA got it wrong on rates, June 16). The market is now pricing in a 46 per cent chance of a rate cut by March next year.

Posted Image

Household spending is poised to fall sharply in the June quarter and business investment and government spending is set to also be weak. Exports, the primary driver of growth in the March quarter, declined significantly in both April and May. The economy is set to contract in the June quarter for the first time since March 2011.

Australian markets will shift their attention towards labour market figures tomorrow, which could have a significant impact on cash rate expectations. Combined with housing finance data, released on Friday, and we should have a better feel about household conditions by the end of the week.

Although it rose modestly in July, consumer sentiment remains subdued and broadly consistent with household spending. The budget spooked Australian households which, combined with soft employment and declining real wages, has encouraged a more cautious approach. Unless the Senate successfully blocks these budget proposals, I suspect sentiment will remain at a fairly low level for some time.

Read more: http://www.businessspectator.com.au/article/2014/7/9/australian-news/confidence-killer-australian-households
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