Rates remain on hold but case for cut grows

  • Official rates on hold again over October
  • Economic outlook remains cloudy
  • Still a chance of rate cut this year
  • Housing market weakening 

The Reserve Bank has again decided to leave official interest rates at the record low of 2.0 percent over October. Rates have now been on hold for five consecutive months but the prospect remains for another cut - perhaps as early as next month.

Concerns over the current and likely future performance of the global economy continue to grow. US regulators have again decided against the widely anticipated increase in official interest rates reflecting ongoing concerns of the strength of its economy. Evidence continues to indicate that economic growth in the Chinese economy will continue to decline with the Eurozone now confronted by the costs of a refugee crisis.

Global stockmarkets as a consequence remain volatile with downward pressure again over the past month increasing general investment pessimism. The Australian stockmarket fell precipitously over September following a similar performance over August. The local market has tracked at its lowest level in over two years in recent weeks, well below this year's peak in April and with the real prospects of a bear market emerging and consolidating.

The national unemployment rate however improved marginally over August following an upward spike over the previous month, but at 6.2 percent still remains close to the highest rate for 12 years. Home building approvals fell over August.

Home building approvals fell over August but again as a consequence of falls in the volatile unit sector. Despite the recent falls, home building levels remain well ahead of those recorded last year. Retail sales rebounded over August after a fall in July but annual growth remains below the year before.  

Most capital city housing markets continue to weaken with auction clearance rates in Sydney now well down on the record high rates of autumn and the Melbourne auction market also showing early signs of weakening. House price growth rates will likely follow auction clearance rates downwards for the remainder of the year.

Growing concerns over the level of local economic growth and sharply diminishing activity in housing markets will likely keep the Reserve Bank focussed on the possible need for further stimulus through additional cuts to interest rates.

Dr Andrew Wilson is Domain Group Senior Economist

Dr Andrew Wilson
Tuesday, 6 October 2015

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