By Lucy Hughes Jones
(Australian Associated Press)
While the global economic outlook may be more worrisome, the local front looks more secure, according to the Reserve Bank, which appears in no hurry to ease interest rates.
In the minutes of its October board meeting, released on Tuesday, the central bank noted the labour market had proved healthier than expected and tipped the jobless rate to hold steady or even fall a little in the months ahead.
“While there are clearly concerns over growth prospects in China and East Asia, on the domestic front the tone was quintessentially glass half-full,” ANZ economists said.
The RBA also expects economic growth to have strengthened in the September quarter following growth in resource exports and dwelling investment.
And the minutes suggested that the economy’s rebalancing act away from mining was being further supported by the weaker Australian dollar – boosting services trade – and the historic low cash rate, which helped housing construction and consumer spending.
The cash rate remained at 2.0 per cent for a sixth straight month following the RBA’s October decision.
The RBA singled out the property price boom as the biggest risk to the economy’s stability, but noted regulatory efforts to dampen investor activity and bolster lending standards appear to be kicking in.
The minutes highlighted signs of easing house price growth in Sydney, but stressed it was too early to know if this trend would last.
“Auction clearance rates in Sydney and Melbourne had (also) declined a little from their recent peaks,” the bank said.
The RBA warned that risks in the commercial property sector were rising, and flagged an oversupply in the apartment sectors.
The meeting was held two weeks ago, before Westpac announced it would raise interest rates on owner-occupier home loans.
But ANZ economists said the announcement wouldn’t have surprised RBA governor Glenn Stevens, who mentioned in July that higher mortgage rates were to be expected given the increased capital requirements for major banks.
Since Westpac’s move, the market has flirted with the possibility that the central bank could slash rates in November.
There is currently a one-in-three chance of a rate cut on Melbourne Cup Day, according to the futures market.
And the market is pricing in an approximate 60 per cent chance of a rate cut by the end of 2015.
RBC Capital Markets Senior economist Su-Lin Ong says Tuesday’s minutes subtly lay the groundwork for further easing in early 2016.
She said the lift in effective lending rates adds to the case for lower cash rates, especially if a number of other lenders follow Westpac’s lead.
Board members were concerned with continued below-average growth in the China and the broader Asian region, which was contributing to weak growth in industrial production.
However the meeting was held before hopes of a soft landing in China were bolstered after the world’s second-largest economy expanded quicker than economists predicted.