No surprise from the RBA: Pete Wargent
Pete WargentDecember 17, 2020
No surprise that the Reserve Bank of Australia opted to leave interest rates on hold at 2% yesterday, preferring to "wait and see" how data flows play out in the months ahead.
Not all that many surprises in the media release either in truth.
Perhaps the most notable point was this:
"The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices."
Although the Aussie dollar has touched a six year low against the US dollar at 74 cents, with commodity prices in an ongoing funk, the Reserve Bank wants to see further depreciation still.
Just how much further depreciation is open to interpretation, but given the strength of the wording one might safely assume that this means at least 10 per cent, and probably more.
With the release also noting that "monetary policy needs to be accommodative" there is every chance that interest rates will fall again at some point within the next year.
Futures markets are all but pricing in another cut over that time frame.
Asset markets
The ASX 200 (XJO) surged by well over 100 points for no apparent reason to record its second strongest trade of the year to date.
Another interesting development this week has been lenders tightening the screws further on investor loans.
As of today Westpac - the Australian bank with the largest dollar amount of credit outstanding to investors - will reportedly apply a maximum 80 per cent loan to value ratio on its investment loans.
This will make it comparatively more difficult for investors without substantial deposits to purchase property.
To compensate we can expect that some lenders will instead encourage owner occupier loans, perhaps by dropping lenders mortgage insurance in some instances, or by dropping standard variable rates in others.
The regulator APRA has evidently applied heavy pressure to banks and other lenders to slow the pace of credit growth to investors, and therefore the outlook for our property markets will shift accordingly over the period ahead.
With rock bottom interest rates all but assured through 2015 and 2016 we can expect to see a shallower but probably longer recovery in property markets, driven increasingly by owner occupiers.
Another point of interest is that certain capital city markets have already been distorted by a steady flow of foreign capital, while simultaneously we also have a central bank which wants to depreciate the currency by a further 10 to 20 per cent.
This may well be the action which opens the sluice gates...just sayin'.
PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.
His latest book is Four Green Houses and a Red Hotel.
Pete Wargent
Pete Wargent is the co-founder of BuyersBuyers.com.au, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.
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depreciation