Two more rate cuts: West­pac

Port Douglas & Mossman Gazette - - FRONT PAGE -

WEST­PAC’S econ­o­mists ex­pect the Re­serve Bank to cut the cash rate two more times next year.

The lat­est Re­serve Bank state­ment on Tues­day fol­lowed the re­lease of the min­utes of the Board’s meet­ing this month.

The Board is ‘‘ con­tin­u­ing to gauge the ef­fects, in­clud­ing in the hous­ing mar­ket, of the sub­stan­tial de­gree of mone­tary pol­icy stim­u­lus that had been put in place over the past two years. There was mount­ing ev­i­dence that mone­tary pol­icy was sup­port­ing ac­tiv­ity in in­ter­est­sen­si­tive sec­tors and as­set val­ues’’.

‘‘Na­tion­ally, dwelling prices were above their late 2010 peak, with prices over the three months to Oc­to­ber in­creas­ing sig­nif­i­cantly in Syd­ney. Hous­ing turnover and loan ap­provals had picked up. Im­proved con­di­tions in the es­tab­lished hous­ing mar­ket were pro­vid­ing an im­pe­tus to dwelling in­vest­ment, with res­i­den­tial build­ing ap­provals in­creas­ing over the year.’’ This an ex­pected de­vel­op­ment from the low level of in­ter­est rates and some­thing the Board is hop­ing will spur on wider do­mes­tic ac­tiv­ity.

It was noted that ‘‘the Aus­tralian dol­lar, while be­low its level ear­lier in the year, re­mained un­com­fort­ably high’’ and that a lower level of the ex­change rate would likely be needed to achieve bal­anced growth in the econ­omy.

No doubt the strat­egy of main­tain­ing an eas- ing bias is partly mo­ti­vated by the need to ‘‘talk down’’ the AUD.

The Bank’s fore­cast for growth ap­pears to be pred­i­cated on the cur­rent hous­ing story flow­ing through to con­sumer spend­ing. This is un­likely to ma­te­ri­alise un­til con­sumers be­come much more com­fort­able with their job se­cu­rity, West­pac says.

The Bank low­ered its growth fore­cast for 2014 from 3 per cent (trend) to 2.5 per cent (be­low trend) due to less in­vest­ment.

The Bank has noted the re­cent strength in con­sumer and busi­ness con­fi­dence as well as the up­swing in house prices and dwelling ap­provals. How­ever, there are clear ques­tion marks on the sus­tain­abil­ity of this up­swing and if it can be main­tained into 2014 given the down­beat out­look for non-res­i­den­tial con­struc­tion; an ex­pec­ta­tion for a ris­ing un­em­ploy­ment rate; the slow­down in min­ing; weak gov­ern­ment spend­ing; and the drag on our ex­ter­nal sec­tor from the high dol­lar.

The RBA is look­ing for the wealth/em­ploy­ment/con­fi­dence boost from the hous­ing up­swing to feed into the weak area of the econ­omy. ‘‘It is our view that the pass through will be slow and un­even, re­quir­ing fur­ther mone­tary stim­u­lus in 2014. It is our view, that two fur­ther cuts in the cash rate will be re­quired in 2014,’’ West­pac says.

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