Morning Briefing: RBA leaving the Official Cash Interest rate on hold becomes the popular pick

RBA leaving the Official Cash Interest rate on hold becomes the popular pick
The Reserve Bank leaving the official cash rate unchanged at today’s board meeting seems to be becoming the popular opinion.

While some economic commentators have been predicting for months that the official cash rate will be below 2% by the time the Melbourne Cup is run and won, those making more recent are leaning towards the current status quo remaining.

Chris Johnson, director of MMJ Real Estate Sydney, said that while the likelihood of a rate cut has increased in recent weeks, he still believes the RBA won’t make a move.

“Two weeks ago I was far more confident, but after the most recent inflation figures I’d say the chance of a cut has gone form 25% to 50/50 bet,” Johnson said.

“But in saying that, I believe there won’t be a cut at the November meeting,” he said.

Johnson said there were a number of factors that influenced his decision, including the recent action of the major Australian lenders, who have all independently raised their home loan interest rates.

“With the current rate at 2% it doesn’t really give them a lot of room to play with. If the RBA was to cut the cash rate it might have some impact, but I don’t think it would be too much,” he said.

“I think everybody was a bit taken aback by the banks going out and raising their rates on their own last week, so I’m not sure the RBA would want to waste cut of 0.25% if they’re not sure how much, or if any of that would be passed on.”

Johnson isn’t alone in his prediction, with 80% of respondents to the most recent monthly RBA survey from Finder predicting the cash rate will stay at 2%.

Peter Boehm, from onthehouse.com.au, is one of those who believes rates will stay on hold as the RBA is unlikely to do anything that could reverse the current direction of real estate markets in Sydney and Melbourne.

“The last thing the RBA would want is to fuel further house price increases through rate cuts, especially as prices in Melbourne and particularly Sydney are beginning to plateau,” Boehm said

“Assuming rates don’t move in November then I think it’s unlikely we’ll see any movements until 2016. The effectiveness of further interest rate cuts at this time is questionable,” he said.

CommSec economist Savanth Sebastian is one of those who believes the RBA will lower the cash rate, predicting that the central bank will want to undo some of the tightening caused by the major banks’ out-of-cycle rate rise.

“Banks raising rates outside of RBA policy is a quasi-tightening on the economy,” Sebastian said.

“Activity levels have been improving but still patchy. A rate cut before Christmas will help to spur activity."
 

Volatile multi-unit sector drives increase in residential construction approvals
The Housing Industry Association (HIA) believes figures released yesterday by the Australian Bureau of Statistics supports their claim that the residential construction industry is entering the peak of itsd current cycle.  

Figures from the ABS show the number of dwellings approved for construction rose by 2.2% over September, with multi-unit approvals driving the overall increase.

“Around the nation, there was a total of 9,300 ‘other dwellings’ (predominantly multi-unit) approved during September,” HIA economist Geordan Murray said.

“While this equates to a 6.1% increase in approvals during the month, the level was still well below the high water mark set earlier in the year,” Murray said.

“The increase in multi-unit approvals was balanced by a modest decline of 1.9% in detached house approvals.”

While there was an increase of multi-unit approvals during September, the figures show they weren’t spread evenly across the country.

“Approvals for dwellings in multi-unit developments continued to demonstrate a high degree of volatility, particularly at the state level,” Murray said.

“There were large fluctuations in a number of states, most notably in Queensland where multi-unit approvals jumped by more than 80%.”

During September, new home building approvals increased in Victoria (5.0%), Queensland (41.6%), and Tasmania (31.7%).

Approvals declined in New South Wales (16.6%), South Australia (14.9%), Western Australia (8.9%), the Northern Territory (3.5%) and the Australian Capital Territory (0.7%).

The September increase in approvals means there has been a record 230,298 dwellings approved in the 12 months to the end of September, which the HIA says will tide the construction industry over as the number of approvals eases in the coming year.

“Today’s result reaffirms our view that we are seeing the peak in the current cycle, and we expect to see building approval numbers easing back throughout early 2016,” Murray said.

“However, there is a very large volume of work in the pipeline that will sustain a very healthy level of actual building activity throughout the upcoming year.”