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By guest contributor Per Amundsen , ThinkTank
The smart money that was on an early cut in interest rates in 2020 is not looking quite so confident now. In Reserve Bank Governor Philip Lowe’s 26 November speech to the Australian Business Economists Dinner, he addressed the current interest rate easing cycle and how it compares with previous easing cycles. In contrast to the previous four, this cycle (it began in 2011) has, in Lowe’s words, been “lower for longer”.
For many close observers of the Governor’s written or oral communications with the markets, this phrase suggested that another 25-basis point cut was on the cards. Some even speculated it could happen as early as 4 February when the RBA board has its first meeting for 2020. The odds of this now happening are akin to a 100-1 chance winning the Melbourne Cup.
It was not just the Governor’s phrase. There was no shortage of economic data to support another cut in the cash rate. Locally, GDP for the third quarter came in at a sluggish 0.4% for an annualised rate of 1.7%; globally, the OECD announced global growth for the third quarter slowed to 0.3% compared with 0.4% for the second quarter. Local retail sales for October were again weak, being flat at 0.0% and down to 2.1% for the year after a third quarter that was down -0.1%.
Since that address by the Governor, good news has outweighed the bad; the economic glass is half full. The Westpac-MI Consumer Sentiment Index rose strongly by 4.5% in November, partly on the back of improved retail sales figures for November which included the increasingly popular Black Friday sales, although it then fell in December and January to be at 93.4, well into negative territory with the horrific bushfires undoubtedly taking their toll.
The residential property market, however, is back in full swing. CoreLogic housing prices for December showed further strong gains in Sydney and Melbourne at 2.0% and 1.7%, respectively. Units were up as well, 1.0% in Sydney and 0.9% in Melbourne, and the month-on-month lift of 1.1% in national housing values continued a strong run with the pick-up for the year being 2.3% after a 4.0% quarterly increase.