It was an unrealistic economist or analyst who expected the Reserve Bank to cut interest rates at the central bank’s board meeting chaired by Governor Phil Lowe for the first time.
And that’s why the handful of analysts tipping a rate cut were being very, very silly. It was a cut of ‘wait and see’ and policy continuity after yesterday’s October board meeting.
In fact there’s no sense of anything but a neutral stance from the RBA, as there was after the September board meeting. So no ‘rate cut’ looms yet more than a handful of economists and analysts expect one to happen in November after the September quarter inflation data is released in three week’s time.
The AMP’s chief economist, Dr Shane Oliver said in a note after the RBA decision that “While Philip Lowe did make a few changes to the RBA’s post meeting Statement these don’t appear to signal any major changes in the RBA’s economic forecasts.
"In short the RBA continues to see the global economy continuing to grow at a below average pace, financial markets functioning effectively, the Australian economy continuing to growth, inflation expected to remain low and an appreciating $A complicating the adjustment in the economy.
"Two areas where there were more substantial changes in commentary were in relation to the labour market and the housing market. In terms of the labour market the RBA has highlighted significant variation across the country in jobs growth and the divergence between part time and full time employment but seems reasonably relaxed about the employment outlook.”
Dr Oliver pointed out that so far as the housing market is concerned, “the RBA remains relatively sanguine but has acknowledged a strengthening in some markets recently (presumably Sydney and Melbourne), suggesting that it may be becoming a bit less relaxed.”
"The RBA seems to remain comfortable in waiting for the surge in apartment supply to cool property prices. Given the recent rebound in auction clearance rates, Sydney and Melbourne property prices continuing to growth solidly after huge gains over the last four years (60% in Sydney, 40% in Melbourne) and the risk that the apartment building boom will go way beyond the point of being healthy, my view remains that the RBA is a bit too relaxed about home prices and at least a bit of “jawboning” would be appropriate at present.”
"Supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. Growth in lending for housing has slowed over the past year. Turnover in the housing market has declined,” yesterday’s statement fro Dr Lowe said.
"The rate of increase in housing prices is lower than it was a year ago, although some markets have strengthened recently. Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in rents is the slowest for some decades,” he said.
The RBA did not repeat its July meeting reference to upcoming inflation data – with September quarter inflation data due later this month – suggests that unlike in July, its bias on interest rates is neutral.
Dr Oliver says he still thinks the RBA will cut again at its November meeting when it reviews its economic forecasts after the release of the September quarter inflation data in late October.
“The near term risks to inflation are on the downside thanks to competitive pressures globally and record low wages growth domestically and the $A is still too high and at risk of further appreciation given the Fed’s endless delays in raising rates again.
"However, with economic growth holding up very well, commodity prices and national income looking like it has bottomed and the new Governor perhaps preferring a period of stability, this is a close call and is 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 remains very unlikely in Australia,“ Dr Oliver added.
