The RBA has resisted the temptation to increase the official cash rate, but has again warned that rates will need to rise soon to keep inflation in check.
While a growing number of economists had predicted the RBA could hike rates today, Governor Glenn Stevens has noted a number of concerns is his post-decision statement.
These include concerns about uncertainty on global financial markets and weak growth in Europe and the United States, with a particular focus on “public finances and banking systems in several smaller countries in Europe”.
Stevens says the Australian economy is growing at trend and inflation is running at around 2.75%, well inside the RBA’s target band of 2-3%.
Until this changes, the RBA is likely to remain on hold.
“The current stance of monetary policy is delivering interest rates to borrowers close to their average of the past decade. The Board regards this as appropriate for the time being.”
RP Data research director Tim Lawless says the Stevens comments today suggest the housing market is no longer a big concern for the Bank, after house price fell 1.2% over the three months to August.
“Previous rate hikes have largely been aimed at cooling rapidly rising home values and the 150 basis point lift in the cash rate between October 2009 and May 2010 certainly had the desired effect on the housing market.”
“Interest rate decisions going forward are likely to be more about controlling inflation than about the housing market.”
However, Lawless says additional rate hikes in the months ahead are likely to put further pressure on the housing market, although home owners should be able to absorb this.
And higher rates might actually work in the favour of investors.
“For investors, the prospect of higher interest rates is not all bad. Higher interest rates are likely to create additional demand from renters in what is already a very tight rental market,” Lawless says.
“We are already seeing the first signs of higher weekly rents and with more prospective buyers choosing to rent rather than own the upwards pressure on rents is likely to increase yields for investors further.”
Typical speculator-centric view. Not a word about business finance, the overvalued AUD, or the RBA’s controversial claims about a “two speed economy”. It’s all about a sector which creates zero employment, or even net negative employment if the building slump is the price willingly paid for successful pork barelling of property speculators. Never in the field of economics was so little tax paid by so many for employing so few.
Anyone got footage or photos of Joe Hockey when he heard the news? I bet he has had a short speech sitting in his top desk draw just waiting, begging, pleading for the RBA to lift rates again so he can blast Labor for their reckless spending encouraging inflation and high interest rates… maybe next month Joe.
Hahah
However, I do have concerns about the almost single-minded nature of the RBA’s interest rate monetary policy. It is clearly insufficient to deal with multisectorial issues especially with the reality of Australia’s two-speed economy.
Bring on the Mining Tax, that will slow down the 2 speed economy and inflation. David , Joe still had a dig though at it. I thought the same thing about Hockey and you can tell when he lies , he smiles , like he thinks he got away with it and also his lips move.
Did anyone read Terry McCrann’s premeptive article on Monday titled “The interest rate blame game”. I quote the first two lines:
“You can blame Julia Gillard and Wayne Swan – and Ken Henry – for being at least partly and arguably significantly responsible for Tuesday’s interest rate rise.
They are continuing to run a hugely expansive fiscal policy, splashing taxpayer money around – stupidly, I might add, but that’s another story – in the middle of the biggest commodity boom in this country’s history.”
I hope he had fun wiping the egg of his face.
Readers of the Economist and the general public like to equate “two speed economy” with “Dutch disease” as if they understood either of them, or as if the “two speed economy” were an agreed fact among Australian economists. I don’t think it is. There is a problem arising from the commodity boom, and the fact that Australia is raising rates while much of the world is still on emergency rates, because this pushes up our currency value and making non-commodity exports uncompetitive.
This may be one of the reasons the RBA decided to hold for now; our dollar quicky fell by close to a cent against the greenback, giving services and manufacturing a bit of relief.
The Gillard government has got people half convinced that the boom in our export commodity prices is a curse, rather than an opportunity. A curse, which has to be clipped in order to boost other sectors, which are currently less competitive on international markets. Stop for a moment and think about that. It’s unwise to become overly reliant on a cyclic boom where we are more price-takers than price-makers. But do you think the Gillard government is making sense when it represents the mining boom as a bad thing for Australia, and the mining super profits tax as almost a form of treatment for a disease?