Rates on hold - for now

Rates remain on hold as case for cut grows

• Official rates steady again over November
• Economic outlook remains cloudy
• Future rate cuts still likely
• Housing markets weakening

The Reserve Bank has again decided to leave official interest rates at the record low of 2.0 percent over November. Rates have now been on hold for six consecutive months but the prospects are increasing for a near-term rate cut.

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 regarding the strength of its economy. China has again cut interest rates as local growth levels deteriorate with Europe and Japan initiating policies to revive chronically flat economies.

Global stockmarkets remain volatile with the Australian stockmarket failing to make significant headway following sharp falls over recent months.

Latest national unemployment data for September was disappointing with the ABS reporting the number of employed fell by 5,100 seasonally adjusted over the month. A fall in the participation rate however held the unemployment rate at 6.2 percent still close to the highest rate for 12 years. The national jobless rate has now remained above 6 percent for 16 consecutive months.

Latest ABS inflation data was also below expectations and reflects a largely stagnant local economy.

Home building approvals fell again over September with the trend falling over the past 6 months but 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 notably fading. House price growth rates in Melbourne and Sydney fell sharply over the September quarter and will likely follow auction clearance rates downwards for the remainder of the year.

Recent actions by regulators that have resulted in mortgage rate increases for owner-occupiers and investors have clearly impacted housing market activity and undermined consumer confidence.

Growing concerns over the level of local economic growth and sharply diminishing activity in housing markets will likely however 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