Brace for record low rates: Pete Wargent

CoreLogic's home value index for July will show that Sydney's prices have blazed 5.6 percent higher over the last quarter and a rip-snorting 10.3 percent in 2016 to date. 

 

 

 

 

The Reserve Bank (RBA) has an inflation target of 2 to 3 percent, and the latest figures this week showed that inflation is running well below that level, and the softest inflation result in 17 years.

 

On Friday the RBA released its Financial Aggregates figures for the month of June which showed total credit growth slowing.

 

Investor credit growth - denoted by the red line below - has more than halved to an annual pace of just 5 percent now, while personal credit growth remains weak, and business credit went backwards in the month. 

 

All up annual credit growth slowed to 6.2 percent, with broad money growth a little slower at 6 percent.

Unfortunately business credit growth printed negative in June, taking the annual result back to 6.6 percent, a disappointing reading which might point towards a cut in interest rates. 

 

While growth in term deposits remains understandably weak, other deposits with banks continue to surge at a very strong double digit pace. 

In the housing market investor credit growth slowed to 5 percent, now tracking at just half the arbitrary "speed limit" imposed by APRA. 

 

Naturally banks and lenders have been pushing owner-occupier loans, but even here growth slow by a tiny fraction from 7.73 to 7.72 percent, having notched a 70-month high in May. 

 

Total housing credit growth of 6.7 percent is now well below the 7.5 percent rate hit in November last year, which will provide some comfort that macro-prudential measures are doing what they were designed to do.

 

 

Overall, while nobody seems quite so sure any more what the split of credit relates to, total credit of $2.57 trillion is now growing at a slower pace of 6.2 percent, down from 6.7 percent in October last year. 

Another factor in this week's interest rate decision was that US real GDP printed at an annual pace of just 1.2 percent in Q2 2016, meaning that the US Federal Reserve won't be hiking rates soon.

The Aussie dollar jumped to 76 US cents, and will probably jump higher again if interest rates are not cut on Tuesday.

Bookies and financial markets are leaning towards an interest rate cut in Tuesday to a record low of 1.50 percent.