As widely forecast, the Reserve Bank cut its key interest rate at yesterday’s October board meeting, setting the cash rate at a new all-time low of 0.75%, down from 1% which was the previous all-time low and again making it clear that it would continue to cut if need be.
In the post-meeting statement Governor Philip Lowe said the bank “is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”
Now while he has said that before (for example it was said in his Armidale speech last week and in remarks to a Melbourne business dinner last night and in the minutes of the August and September board meetings), to repeat it when the key interest rate in the economy is only three rate cuts above zero, tells is the central bank is very determined to kick start the economy.
The post-meeting statement (and no doubt the minutes in a fortnight’s time) also show the RBA is still waiting for the Federal government to do more on fiscal policy.
Dr. Lowe also made it clear that low-interest rates are here to stay in Australia for some time yet “It is reasonable to expect that an extended period of low-interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board will continue to monitor developments, including in the labour market.”
The rate cut came after conflicting news on the strength of the key housing sector. First housing approvals continue to fall indicating that investment in dwellings will continue to drag down growth well into 2020. Despite that weakness, national house prices rose strongly in September thanks to big gains in Sydney and Melbourne.
According to CoreLogic figures released on Tuesday, house values in Sydney and Melbourne jumped 1.9% in September, pushing the national measure up 0.9%, the strongest monthly rise since March 2017 as the two rate cuts from the RBA (before yesterday’s cut) boosted demand.
Over the past three months, Sydney house values have lifted by 3.6% although they are still down by 0.9% so far this year.
In Sydney, the median house value is now back over the $900,000 mark, jumping $23,000 alone through September to be $34,000 above its most recent low point in May. Melbourne’s median house value has returned to $729,000, up $20,000 from its recent low point in June.
It has lifted by 3.4% over the quarter but is still 1.9% down through 2019.
But building approvals fell a seasonally adjusted 1.1% in August instead of a small rise forecast by the market, to be down 21.5% in the year to August.
The market had forecast a 2.0% rise in total approvals following a sharp 9.7% drop in July. private housing approvals fell 2.4% in the month in a surprise and are now down 17% in the past year.
Approvals of apartments, units, townhouses rose 3.1% which was nowhere near enough to offset the weakness in private dwellings. Non-private dwelling approvals are now down a seasonally adjusted 28.9% in the year to August which remains the big story from housing, not the surge in prices in Sydney and Melbourne.
Governor Lowe told the real story in his post-meeting statement yesterday when he pointed out:
“There are further signs of a turnaround in established housing markets, especially in Sydney and Melbourne. In contrast, new dwelling activity has weakened and growth in housing credit remains low.”