Rates to Stay on Hold Until July–Economist

House pricesHSBC’s chief economist says he expects the central bank to leave interest rates on hold until mid-year, even though inflation is showing signs of picking up.

Paul Bloxham, a former Reserve Bank economist, said last week’s CPI numbers were “the beginning of the upswing in inflation.”

“I think it is the beginning of a sequence of inflation numbers that will start to look stronger than the previous set,” he told ABC’s Inside Business program on Sunday.

The Australian Bureau of Statistics (ABS) surprised economists last Wednesday, after it reported that the Consumer Price Index (CPI) had risen by 1.6 per cent in the March quarter for an annual inflation rate of 3.3 per cent.

“It will start to be a concern for the RBA, they will start to then be thinking about having to lift rates, particularly given that it was underlying inflation that picked up,” Mr Bloxham said.

Mr Bloxham said HSBC expects borrowers to be spared an interest rate rise on Tuesday, despite the signs of rising inflation.

“We expect that the next rate rise will be in July or August and that we’ll get another 50 basis points this year, by the end of this year,” he said.

Over the coming year, Mr Bloxham said he expected the cash rate to rise 100 basis points.

Of 13 economists surveyed by AAP, 11 expected the central bank to make its first rate hike in the third quarter of the year.

Story source: http://finance.ninemsn.com.au

Tags: economy, finance, interest rates, property

RBA minutes point to interest rates staying put

In the minutes of the monthly monetary policy meeting on April 5, the RBA said its board had noted that loan rates facing businesses and households were “a little above average levels”, thanks to earlier official rate increases.

The RBA said that was appropriate, given the need to keep inflation consistent with the two to three per cent medium term target the central bank imposed on itself in 1993.

The minutes revealed an understandable preoccupation with the disastrous events in Japan and the floods in Queensland.

But the RBA said that in making its decision to keep the cash rate steady it would “look through” the effects of the floods, which would lift headline inflation and depress gross domestic product growth in the March quarter.

And despite the earthquakes and tsunami in Japan, the most likely outcome was that the prices for Australia’s main exports would “remain at high levels for some time to come”.

As a result, businesses investment, particularly in the extractive industries, was still expected to rise sharply.

“A strong pick-up in business investment remained the central element in the medium-term outlook,” the RBA said in the minutes.

“Members noted that a major challenge was whether the economy could accommodate the expected high rate of investment without undue pressure on costs.”

So far, however, pressures in the labour market had been localised.

“Liaison with firms suggested that wage growth was increasing in mining and related industries and some skilled occupations, though pressures in the labour market had not become widespread.”

And the RBA acknowledged that the pace of employment growth had not only slowed since late 2010 but that forward indicators suggested it would continue “at a more moderate pace than seen last year”.

The minutes show the RBA sees no likely need to raise the cash rate in the near term.

The closing comment in the minutes made it clear it was not a line-ball decision to keep the cash rate steady, especially since the lending rates were already on the high side of normal.

“Members therefore did not see a case to change the cash rate.”

The RBA’s view on monetary policy tends to change bit by bit over time until the case to move becomes stronger than the case to sit pat.

Accordingly, the “no case to hike” assessment should remain dominant for a few months at least, barring some sudden, unanticipated change in the economic outlook.


Tags: banks, economy, finance, interest rates, lending, property

HIA: Rates, prices cap home building

new homesNew home building will fall 15 per cent in 2011 as interest rates and poor affordability wipe out recent stimulus-driven gains, Australia’s peak residential construction body says.

The Housing Industry Association predicts 25,000 fewer homes will be built in 2011 than 2010, a downwards revision from previous estimates, according to its National Outlook for the December quarter.

HIA wants the federal government to introduce further stimulus measures to boost new housing starts so they don’t fall back to 2009 global financial crisis levels.

“Housing starts are forecast to fall by 15 per cent to a level of 143,430 in 2011, wiping out a majority of the short-lived, stimulus driven gains of last year,” HIA chief economist Harley Dale said in a statement.

“This fact delivers a very poor scorecard on new home and rental market affordability, which especially hurts aspiring first home buyers and lower income households.”

HIA also wants the government to appoint a minister responsible for fixing Australia’s housing shortage and review taxes charged on new home construction.

Dr Dale said housing starts had risen in just two out of the past 10 years – 2002 and 2010.

A significant decline in new home building in Victoria, formerly the “shining light of residential building”, was a major contributor to the poor outlook, Dr Dale said.

“We are forecasting a 19 per cent fall (in Victoria) from these dizzying heights, to 48,170 starts in 2011,” he said.

“If the alarming escalation in residential land values is not arrested, the fall from grace will be much sharper.”

Queensland’s residential building market, the weakest in Australia, is forecast to fall 20 per cent in 2011.

NSW housing starts are forecast to fall 4 per cent in 2011, on top of a current shortfall of 15,000 dwellings per year.

Western Australia would face its fourth decline in five years, due to a shortage of readily available land and the need for policy reform, HIA said.

South Australia, Tasmania, the ACT and the Northern Territory were all expected to see declines in new home construction in 2011.

HIA said this would flow through to growth in renovations activity, which hit nearly $32 billion in 2010.

“We expect activity in the renovations sector to hold largely steady this financial year, which would be a good outcome,” Dr Dale said.


Tags: approvals, building, economy, property, real estate

Reserve Bank Leaves Interest Rates On Hold

residential-propertyMortgage holders were given a boost today when the Reserve Bank decided to keep interest rates on hold.

While the move is hardly a surprise, it will still be welcome news for people paying off a mortgage.

Each 0.25 per cent interest rate rise adds another $60 to the monthly cost of an average Australian mortgage.

The official interest rate is now 4.75 per cent. Mortgage holders on variable interest rates are being charged a standard variable rate of about 7.83 per cent by their lenders.

Mortgage holders wanting to pay down their debt faster should take the opportunity to pay a little more off their loan now.

On a new 25-year $370,000 mortgage, if you paid an extra $60 per month, or about the equivalent of a 0.25 per cent rate rise, you could clear your mortgage 17 months sooner and save $30,085 in interest.

Tags: economy, finance, interest rates, mortgage, property, real estate

Posted in News

RBA minutes show rates unlikely to change

REITThe consensus that interest rates in Australia are unlikely to change for a few months will not be challenged by the minutes of the central bank’s latest monetary policy meeting.

The minutes of the Reserve Bank’s board meeting on March 1 gave no indication another interest rate rise – the last was back in November – was imminent.

Key to this outlook was a steady outlook for economic growth and inflation, aside from the transitory effects of wild weather, which would boost inflation and depress growth over the December and March quarters before having the opposite effects later in 2011.

‘‘Overall, the economy appeared to be growing at close to its trend rate and the outlook for inflation over the year ahead was consistent with the target,’’ according to the minutes, released today.

The RBA adopted a medium-term target of two to three per cent for inflation in 1993 and inflation has averaged a pace very close to the centre of that range since then.

Much of the discussion of domestic conditions was around the effect of the floods and Cyclone Yasi, but the minutes reiterated the RBA’s determination not to be distracted by these short-term effects.

‘‘Domestically, extreme weather events were now being reflected in some measures of economic activity,’’ the RBA said in the minutes.

The RBA’s staff estimated the flooding in the eastern states ‘‘could take around half a percentage point off growth (in gross domestic product) in each of the December and March quarters’’.

‘‘The effects of Cyclone Yasi would also add to CPI (consumer price index) inflation in the short run, but those effects were likely to be reversed later in the year,’’ the bank said.

‘‘Members confirmed that the board’s approach would be to look through temporary effects caused by extreme weather events and to continue to set monetary policy based on the medium term outlook for growth and inflation.’’

The minutes noted ongoing upward pressure on commodity prices and the looming resources investment boom which would ‘‘take investment in that sector to a level that was unprecedented as a share of GDP’’.

Given that, along with the unemployment rate already at a low five per cent and the RBA’s latest official forecasts – in the quarterly monetary policy statement in February – already showing inflation heading to the top of the target range over the coming two years, the main risk for the future is still rising inflation rather than slowing growth.

Accordingly, the odds still favour another increase or two in the cash rate from the current 4.75 per cent.

Still, the minutes show no sign the RBA is contemplating such a move in the next few months.


Tags: economy, finance, interest rates, mortgage, property, reserve bank

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