Rates cloudy

Port Douglas & Mossman Gazette - - REAL ESTATE -

WEST­PAC’S econ­o­mists be­lieve that any pos­si­bil­ity that the Re­serve Bank of Aus­tralia will cut rates later in the year hinges on the likely out­look, at that time, for growth in 2015.

Fac­tors that will im­pact on that out­look will in­clude the on­go­ing down­turn in min­ing; fis­cal con­sol­i­da­tion; the im­pact of a fall in the terms of trade; and two im­por­tant macro dy­nam­ics which, West­pac be­lieves, the RBA is un­der­stat­ing – the di­rect feed­back ef­fects on con­fi­dence and in­comes of the weak labour mar­ket and on­go­ing cau­tion among busi­ness and con­sumers.

Coo­ment­ing on the re­lease of the min­utes of the RBA’s last meet­ing, West­pac said the gover­nor made it clear that pol­icy had been moved to a neu­tral stance and these min­utes con­firmed that view.

There are a num­ber of be­havioural as­sump­tions in the min­utes.

Firstly it is as­sumed that the labour mar­ket will lag eco­nomic growth with feed­back ef­fects from em­ploy­ment to in­comes and con­fi­dence tend­ing to be over­looked. It is there­fore as­sumed that the rise in house prices will prompt a marked lift in con­sumer spend­ing through the wealth ef­fect and there­fore a re­duc­tion in the sav­ings rate.

‘‘We tend to be more scep­ti­cal around that dy­namic given the on­go­ing at­ti­tude of house­holds since the Re­serve Bank started to cut rates in Novem­ber 2011,’’ West­pac said.

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