The Reserve Bank is no doubt looking closely at how the economy is responding to the interest rate cuts. And so far it probably would be surprised at the relative lack of response. Figures on new lending commitments have been released for August – that is, after the rate cuts in May and June.
And the total value of personal, housing, commercial and lease loans was actually the second lowest in the past two years. People are more inclined to repay debt than borrow. And as the Reserve Bank Board minutes pointed out this week, members discussed “the desire of households to pay down their debts ahead of schedule.”
If the Reserve Bank is more comfortable that rate cuts won’t spark a boom in Australia, then it will keep on cutting.
And there is even more support for a November rate cut from home price data. While home prices are up sharply since May, they haven’t continued to soar. Since the end of September, home prices have eased 0.6%, according to the RP Data daily home price index.
The week ahead
Thank goodness there is a solid week of overseas events, because the domestic economic calendar is decidedly sparse. In Australia, inflation data dominates. In the US, the Federal Reserve meets. And overseas generally there are “flash” readings to detect the health of manufacturing sectors.
In Australia the week kicks off on Monday with CommSec’s quarterly survey of state and territory economies.
There are a few surprises, but little surprise about the economies at the top and bottom of the economic leader board.
The good news is that while there is a paucity of economic data in Australia over the week, there are still some speeches by Reserve Bank officials to watch. On Monday, Guy Debelle, RBA assistant governor, financial markets, delivers a talk: ‘Enhancing Information on Securitisation’. And on Wednesday, Luci Ellis, head of financial stability department, delivers a speech to the CPA Australia Finance and Accounting Expo 2012.
On Wednesday, the September quarter inflation figures are due – the Consumer Price Index (CPI). Ordinarily this data would be preceded by two reports: trade prices and producer prices. But we’ll have to wait until early November for updates on these indicators.
Overall CommSec is tipping a tame result for the CPI, increasing the odds for the Reserve Bank to deliver the final rate cut for the year on Melbourne Cup Day. The headline CPI is expected to rise by 0.9% in the quarter and by 1.5% over the year. Underlying inflation may lift by only 0.6% or 2.2% over the year.
In the September quarter, seasonal increases in electricity, gas, water and council rates are balanced against lower health costs due to effects in the Pharmaceutical Benefits Scheme. Seasonal price increases also tend to occur in international travel and accommodation costs.
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