Rate cuts flowing through to housing so no RBA rate cut next week: HSBC’s Paul Bloxham
The Reserve Bank will leave the cash rate on hold next week with 75 basis point in cuts passed over the past three months already supporting the interest rate-sensitive sectors of the economy, including housing, according to HSBC Australia economist Paul Bloxham.
However, the RBA is still leaning towards a rate cut sometime in the fourth quarter of the year, he says.
His comments follow the ABS house price indexes for the eight capital cities showing a 0.5% gain over the June quarter and an upwardly revised 0.1% decline in the March quarter.
The following chart prepared by HSBC (with the interest rate inverted) shows how house prices have responded to the reduction in mortgage rates
In addition, retail trade figures also released this week showed that Australian retail turnover rose 1% in June 2012 – better than market forecasts of 0.6% while May figures were also upwardly revised to 0.8%.
Bloxham also believes that the residential construction cycle may have bottomed out.
“After jumping sharply in May, building approvals held onto most of the gains in June, which was an upside surprise.
“While approvals for detached house construction have continued to slide, medium density approvals rose, and it is likely that the residential construction cycle has troughed.
“Housing prices are starting to lift. Finally, retail sales numbers came in strong for the second quarter, which suggests that household consumption will be well supported in the quarter,” he says.
Bloxham also says that the rate cuts in May and June have “accounted” for the easing in global conditions and the RBA is now “ahead of the game.
He adds that despite reports to the contrary (most notably from Deloitte Access Economics), “there is still significant support for growth to come from mining, both in the form of further investment and rising exports”.
“In addition to the policy decision on Tuesday, next week brings the RBA’s August official statement on Friday.
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