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Reserve Bank on hold, relatively relaxed about the housing market


With the RBA having just cut rates again last month, the economy running reasonably and no new inflation figures being released in the last month, it was no surprise to see the RBA leave rates on hold at 1.5%, at its September meeting.



This was the consensus and our own expectation.

The Statement accompanying the RBA’s decision to leave interest rates on hold was little-changed; bar a bit of tweaking here and there… maybe Philip Lowe will do a bigger re-write when he takes over for the next meeting.

The RBA continues to see the global economy growing, financial markets functioning effectively and the Australian economy continuing to grow. They however see labour market indicators being somewhat mixed, inflation remaining quite low, an appreciating A$ complicating the adjustment in the economy, and seem rather sanguine regarding the housing market.

While the RBA’s statement lacks a clear easing bias, it is noteworthy that its June statement (the RBA having just eased in May) was also largely interpreted as neutral, with an easing bias only returning (expressed via a reference to the Bank awaiting “further information”) in July ahead of inflation data to be released later that month. So if history is any guide, the October statement should be watched for any return to an easing bias ahead of September quarter inflation data due later that month.

Housing market

Perhaps a surprising aspect of the RBA’s statement is its relatively sanguine comments regarding the housing market. I would have thought the bounce back in auction clearance rates in Sydney and Melbourne and renewed strength in housing finance would suggest that this year’s rate cuts have reinvigorated the already hot property markets in those cities, suggesting the case for another bout of RBA “jaw boning” and possible APRA action to cool things down again. At this stage, the RBA appears more comfortable in waiting for surging apartment supply to cool things down.

What to expect in November

We remain of the view that the RBA will cut rates again at its November meeting, when it reviews its economic forecasts after the release of the September quarter inflation data (in late October). The risks to inflation are on the downside thanks to underlying deflationary pressure globally, record low wage growth domestically and an A$ that is still too high and at risk of further appreciation given the US Federal Reserve’s (Fed’s) endless delays in raising rates further.

However, with economic growth holding up very well (data for public spending, sales, profits and inventories released over the last few days points to June quarter GDP growth accelerating further to 3.5% year on year) this is a close call, and is now critically dependent on seeing a lower than expected September quarter inflation result. Either way, a cut in the cash rate to 1% or below and the adoption of quantitative easing looks very unlikely in Australia.

About the author
Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital's diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.
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