The release of the Reserve Bank of Australia’s (RBA) September meeting minutes has made a clear case for another cash rate cut this year.
So far the two rate cuts and income tax refunds have not worked to “noticeably” lift consumer spending.
Consumer sentiment is slumping and this has translated into decreased retail spending.
Watch this week’s Property Insiders video as Dr. Andrew Wilson and I unpack the latest RBA minutes.
Watch as we discuss:
- Why interest rates are likely to fall again, but they are unlikely to get the result the RBA desires
- Why the government should assist the economy with more fiscal stimulus
- The bank made cautious comments on employment growth
- How the RBA believes that weakness in construction and housing investment, combined with greater household disposable income, may in fact stimulate further growth in house prices.
“Data on residential building approvals and information from the bank’s liaison program suggested that there was likely to be further weakness in dwelling investment in the near term; members recognised that this could sow the seeds of an upswing in the housing price cycle at some point…”
- The minutes also showed that members had given more attention to instability overseas.
“Members had a detailed discussion of the ways in which financial conditions abroad affect Australia.”
“They discussed how shifts in world interest rates and global risk premiums flow through to domestic financial conditions.
RBA Concedes Rate Defeat – What’s Next?
Commentary from Dr. Andrew Wilson:
The RBA has conceded that its recent extraordinary measures to stimulate economic activity have failed to produce hoped for results in key sectors.
Consecutive cuts to official rates in June and July following a record period on hold were designed to stimulate domestic consumption, revive subdued incomes and record low inflation.
The federal governments tax relief package was also hoped to bolster the impact of lower rates.
But with the predictable exception of housing markets, the domestic economy continues to flatline with worrying signs of a further deterioration in prospect.
Retail sales fell over July, construction continues to weaken, particularly residential (big surprise) and consumer sentiment is tanking.
A desperate RBA is signalling an imminent rate cut(s) – what else can it do?
But this is again unlikely to produce the hoped-for results and merely exposes Australia to an external economic shock with not much ammunition left.
And to maintain a competitive currency, local rates will have to react to the current easing of monetary policy underway in most advanced economies.
Time to ramp up government spending – and forget the surplus obsession.
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