Interest rates steady although outlook uncertain • Official rates on hold at final meeting for the year • Economic uncertainty prevails with recent indicators deteriorating • Late spring housing markets weakening • Chance of 2015 mid-year rate cut if jobless keeps rising At its final meeting for the year, the Reserve Bank announced today that official interest rates would remain at the current level until the next meeting scheduled for February 2015. Interest rates have been at the 60-year low of 2.5 percent now for 16 consecutive months, equalling the previous longest steady sequence set in 1997-98. This months economic data remains both underwhelming with the October national jobless rate stuck at the previous months rate of 6.2 percent - the highest recorded since July 2003. Home building approvals decreased sharply over September as growth in house approvals continues to decline with unit approvals accounting for the overall increase in planned dwelling construction this year. The Australian dollar has weakened over the month as an improving US economy continues to push the local currency downwards in line with policymakers objectives. Concerns however continue to increase over the outlook for the level and sustainability of US growth and the global economy generally. The stock market remains restrained after experiencing a roller coaster ride over October. Relatively flat retail sales over September add to the overall subdued recent performance of the national economy. Late spring housing markets have weakened with trend weekend home auction clearance rates for both Melbourne and Sydney falling to the lowest levels in over a year. The Sydney market clearly leads capital city prices growth however the Melbourne market continues to weaken with house price growth this year unlikely to meet the inflation rate. The low mortgage rate driver of market activity that drove prices growth over the past year is generally diminishing in the face of modest incomes and profits growth from continuing under-performing local economies. With house price growth now clearly moderating within an overall weakening economic environment, interest rates are set to remain at current levels over the shorter-term. A continuing deterioration in the jobless rate however will increase the likelihood of a rate cut mid-year 2015. Dr Andrew Wilson is Senior Economist for the Domain Group.
Posted on: Tue, 02 Dec 2014 03:40:49 +0000
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