Australia’s central bank holds rates as housing market booms
Australia’s central bank (CB) held rates at near-zero in a widely expected move on Tuesday as easy monetary and fiscal policies propped up the coronavirus-hit economy, fueling demand for homes and boosting construction activity.
At its last policy meeting of the year, the Reserve Bank of Australia (RBA) left its cash rate and the three-year government bond yield target at 0.1% while maintaining its A$100 billion quantitiative easing programme.
In a short post-meeting statement, Governor Philip Lowe sounded optimistic about a recovery as the country has confidently reopened with almost zero new coronavirus cases.
“The economic recovery is under way and recent data have generally been better than
Easy monetary and fiscal policies propped up the coronavirus-hit economy, fuelling demand for homes and boosting construction activity
expected,” Lowe said. “This is good news, but the recovery is still expected to be uneven and drawn out and it remains dependent on significant policy support.”
Lowe reiterated the board was unlikely to raise the cash rate for at least three years and was prepared to do more if necessary.
The decision to stand pat comes as data indicates Australia’s A$2 trillion economy likely rebounded sharply last quarter from its first recession in three decades.
Australia’s worst downturn since the Great Depression, rising unemployment and feeble inflation prompted the RBA to slash the cash rate three times this year while the federal government unleashed a A$300 billion fiscal spending plan.
The stimulus has ignited fire in the property market where home prices jumped 0.8% in November while approvals for new homes have surged to 20-year highs.
Lowe said the fiscal and monetary support will be required for some time, given both employment and inflation are expected to stay subdued. He did not mention the housing market in his statement though he might be grilled on the topic by a parliamentary economics committee where Lowe will make an appearance on Wednesday.
Meanwhile, Australian farmers are on track to harvest their second-biggest-ever wheat crop after years of drought, as the country’s chief forecaster raised its production estimate on Tuesday by nearly 10% to more than 30 million tonnes because of favourable rainfalls.
The Australian Bureau of Agricultural and Resource Economics and Sciences ( ABARES) said wheat production during the 2020/21 season would total 31.17 million tonnes, up from a September estimate of 28.91 million tonnes and not far off the country’s all-time high of 31.8 million tonnes in 2016/17.
“Favourable rainfall during September and October was perfectly timed for the growth cycle,” ABARES Executive Director Steve Hatfield-dodds said in an emailed statement.
The bumper crops, already being harvested in many parts of the country, are likely to weigh on benchmark prices, which hit a sixyear high last month.
Many of the areas worst hit by the threeyear drought, including in the eastern state of New South Wales (NSW), are now leading the agricultural recovery that will help the economy recover from its first recession in 30 years after large swathes of business were shut down to slow the spread of COVID-19.
“It was a dust bowl this time last year in many areas; what wasn’t dust caught fire,” NSW Farmers Vice President Xavier Martin told Reuters. “Farmers are now going into their paddocks and finding higher yields than expected.”
Grain farmers in NSW are forecast to harvest 12.2 million tonnes of wheat this season, making it the country’s biggest wheat-producing state.
Although ABARES also lifted its barley production estimate to 11.96 million tonnes, up from its September prediction of 11.2 million tonnes, barley growers face bleaker prospects.
China this year imposed anti-dumping and anti-subsidy duties of 80.5% on Australian barley imports, effectively halting a billiondollar trade.
Separately, Australia’s Pilbara Minerals said on Tuesday it will buy the lithium operations of troubled peer Altura Mining for $175 million, at a time producers of the raw material are hurting from flat prices in the country.
The global market for lithium may have reached a bottom, analysts say. Prices for lithium carbonate have climbed by 17% off June lows as electric vehicle demand from China recovers, but are still around a quarter of when prices were at their peaks.
There have been no signs of life in prices of spodumene, a hard-rock mineral mined for lithium. The prices have flatlined below $400 since August, while majority owner of the world’s largest hard rock mine, China’s
Tianqi Lithium Corporation has had to extend a debt repayment schedule by a month.
Pilbara was vying with Galaxy Resources Ltd to acquire embattled lithium producer Altura, which entered receivership in October after the impact of the COVID-19 pandemic exacerbated a prolonged period of low prices for battery materials.
Altura’s shares had been delisted on August 8, at which time the miner was capitalised at A$209 million ($153.74 million) compared with a peak of A$1.5 billion in January 2018.
Pilbara said it has proposed an arrangement under which it will also contribute A$6 million to a fund to support Altura employees who have been made redundant following the lithium project being placed into care and maintenance. Altura’s creditors will vote on the proposal on or before December 11, while its senior secured loan noteholders have agreed to vote in favour of the proposal.
Shares of Pilbara, which were halted pending the news, rose as much as 5% to A$0.745 after trading resumed.