At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.
Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year. Commodity prices have declined from their peaks, but generally remain at high levels by historical standards. Inflation in most countries remains well contained.
Overall, global financial conditions remain very accommodative, though the recent reassessment by markets of the outlook for US monetary policy has seen a noticeable rise in sovereign bond yields, from exceptionally low levels. Volatility in financial markets has increased and has affected a number of emerging market economies in particular. Notwithstanding the higher volatility, Australian institutions have ample access to funding markets.
In Australia, the economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment. The unemployment rate has edged higher. Inflation has been consistent with the medium-term target. With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the recent depreciation of the exchange rate.
The easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values, and further effects can be expected over time, including from the declines in rates seen over recent months. The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households.
The Australian dollar has depreciated by around 15 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.
At today's meeting, the Board judged that the setting of monetary policy remained appropriate. The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target.
The Reserve Bank of Australia meeting today is a proverbial no brainer – there will be no change in the cash rate from the 2.5 per cent level set by the bank when it met last month.
This does not mean that the meeting of the board and its deliberation over interest rates will not be hugely interesting – it will. Discussion over which areas of the economy remain soft, which are either turning up or are already strong will no doubt be argued around the table. For the Reserve Bank staff, it is likely to be the more positive news that will be gaining focus because it is starting to signal a return to trend GDP growth in the not too distant future. With this comes heightened risks of higher inflation sometime in the next year or two.
The Reserve Bank board will likely agree that the flow of hard economic news in the past month has been erratic, albeit with a slight tilt towards the upside.
In no real order, the positive signs for the economy are showing up with house prices continuing to increase and business investment recording an unexpectedly strong rise in the June quarter. There are also very clear signs of an improvement in global economic conditions and a lift in commodity prices, all of which will work to support the Australian economy.
Add to that an above trend level for consumer sentiment, a moderate but clear uptick in new housing construction, a strong lift in export volumes, fiscal policy has moved to neutral and there has been a slight upturn in credit growth. This mix of news should be enough for the optimists around the board table to hang their hat on.
This optimism is enhanced by the recent depreciation of the Australian dollar, which remains more than 15 per cent lower than in April. This new level for the currency, if sustained, is likely to provide a further boost for already strong exports and it will help those firms competing with importers. The lower dollar will also bias inflation a touch high both directly through higher import prices, but also through its stimulatory impact on the economy.
The TD-MI Monthly Inflation Gauge, released yesterday, shows an inflection point for inflation in the last few months. The September quarter CPI looks like rising 0.7 per cent.
Those on the Reserve Bank board with a less positive view of the economy will also have some high profile facts to support their case.
Most important is the slower rate of job creation and the moderate rise in the unemployment rate in recent months. While labour market conditions lag the business cycle and will be the last thing to track a stronger rate of economic growth, the jobs softness and the still negative lead from the forward looking indicators of employment – job advertisements and vacancies – suggests that the unemployment rate will tick up towards 6 per cent by the end of 2013 or in the first part of 2014.
This clear softening in the labour market is also showing up in weak wages growth which, according to the wage price index, is rising at an annual pace of a tick below 3 per cent. This is one of the lowest rates on increase in wages seen in several decades. Low wages growth is a key input into the near-term inflation outlook and if recent trends remain, the forecast pickup in inflation will be moderate.
Adding to that less-than-robust news is the weakish level of business confidence – confirmed in the recent Dun & Bradstreet survey but also in the NAB business survey. While confidence is fickle, a stronger economy is normally associated with a more buoyant level of optimism from the business sector.
An interesting aspect of the recent capital expenditure survey form the Australian Bureau of Statistics was that the expected level for business investment for the year ahead was subdued. This was despite the unexpected strength in investment in the June quarter.
It still looks like business investment will be weak – perhaps down 5 per cent – in 2013-14.
It is also evident that retail spending is only mediocre with consumers still adding to savings and in many instances, paying down debt.
The end point is that interest rates are on hold not only today, but also for the next few months. The interest rate debate is slowly shifting away from when the next rate cut will be delivered to whether there will be a rate cut at all.
If the run of good news gathers pace in the months ahead, the debate will start to focus on when the Reserve Bank will deliver the first interest rate hike in the new cycle.
Good. Now push 'em up to about 15% 'n let's see how all these little bull baskets go! ...
Yeah and have roaring fires across the country followed by a tsunami Then bring on some cyclones and then zombie wombats and kangaroos But its OK, because Mad Max will save us because he fked the Borg Queen (resistance really was futile) and now has a thorium reactor in his Interceptor
Ignore posts by The Whole Truth · View Post · End Ignoring The forum fuckwit goes RRRAAARRRGGHHhhh - But not a fuck was given..................by anyone.
Rates would be a lot higher already if they were serious about combating inflation instead of just paying it lip service.
if rates rise we would want to sell our metals as quickly as possible though. The fact metals have taken an arse kicking in a low rate environment should sound alarm bells IMHO
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
if rates rise we would want to sell our metals as quickly as possible though. The fact metals have taken an arse kicking in a low rate environment should sound alarm bells IMHO :)
It seems like globally CB's are trying to inflate their way out of much needed deflation. The imbalances this has created are obvious and will eventually cause a much bigger crisis IMO.
The Reserve Bank of Australia (RBA) has kept the official cash rate on hold at 2.5 per cent, following the monthly meeting of the board this afternoon.
Most economists and financial commentators expected the RBA would sit tight, given the strength of the property sector and relatively flat inflation.
RP Data research director Tim Lawless says many housing markets are seeing the benefits of the low mortgage rate environment.
Substantially higher buyer activity in many areas combined with lower listing numbers means the time a home spends on the market has dropped to just 41 days from 62 days a year ago.
“Dwellings have continued along their recovery path, with home values half a per cent higher in August and seven per cent higher since the house market started recovering in May last year,” Lawless says.
The rise in house prices has been accompanied by a lift in buyer numbers as well. Based on transaction data for the June quarter, the number of home sales across capital cities is about 31 per cent higher than 12 months ago, he says.
A number of experts still predict one more rate reduction by the end of the year.
The RBA has cut rates by 2.25 per cent since it began its downward focus in November 2011, saving the average mortgage holder around $450 each month.
With the Reserve Bank leaving the official cash rate on hold today, it has many property owners wondering whether now is really the bottom of the cycle and how they should make the most of it.
The lower interest rates has seen news come out of Perth of tenants breaking their leases to get into the buying market, causing landlords to react by lowering their rents.
However, in other states and territories this isn’t quite the same story and there are opportunities to take a closer look at how to time decisions correctly.
“Perth is the only market where first-home buyers are back to where they historically have been,” said BIS Shrapnel’s Angie Zigomanis.
“Activity in New South Wales and Queensland [from first-time buyers] is so low because of the changes to government initiatives that sucked the demand forward,” said Zigomanis.
This leaves investors in other states able to focus on maximising their investments during this lower interest rate period
When looking towards fixing your loan, however, there may yet be some time to go before it sits at the top of your to-do list.
Zigomanis predicts that there’s the potential for perhaps just one more cut this year.
“But they’ll probably stay stable for all of 2014 and start rising from 2015. The RBA will want to see an upturn in the economy first. Their real concern is that they’d like to see an upturn in construction that it is sustainable,” he said.
“Wait a little longer to fix.”
SQM Research’s Louis Christopher agreed that the end of the rate cutting cycle is getting closer and that investors need to start being diligent about looking out for when increases are likely.
“The first thing we’ll see before an increase will be the banks lifting their four, three and two year fixed rates move to being at a premium to current variable rate, whereas currently they’re on par or at a discount to them.
“When that will happen I’m not sure, but it will happen when the market starts to tip more confidence in the economy, business and consumer,” Christopher said.
However, there’s one unknown factor for investors looking to pick when the next increases may occur.
“Will the RBA need to respond to rapidly rising house prices? It has been a good run so far for existing property investors and owner occupiers and we think the market recovery will continue into 2014,” he said.
In fact, currently the biggest indicator for investors will be the percentage rise by which the property market recovers.
In an address to the Anika Foundation at the end of July, RBA governor, Glenn Stevens said that the outlook for income but also the expectations for asset values, in particular whether housing prices are overvalued, will heavily affect the overall decisions made by the RBA.
“Those who think they are will be drawn to the conclusion that a number of additional years of flat or declining real per capita asset values lie ahead, for non-financial assets at least; those who are not so worried about housing prices may expect that stronger growth, in real per capita terms, might occur,” Stevens said.
“Either way, however, it would seem unlikely that we could bank on a resumption of sustained growth in assets, in real per person terms, of 7% per year over the next few years. It follows that the saving rate is unlikely, any time soon, to decline back to where it was in 2005.”
With this in mind, investors need to be watching the growth figures carefully to predict when the rate cycle might start heading upwards.
“It’s a difficult one to know whether they should fix at all. Timing of these things is very difficult to do. It takes constant research and what your own personal financial situations require,” Christopher said.
“It’s very individual but in our opinion we do believe we are getting very close now to the end of the interest rate cutting cycle. I think when there is more confidence, and it may well come soon after the election, it will be difficult for the RBA to justify the rate setting when house prices are rising beyond 7%.”
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