Credit squeeze creates RBA conundrum

For the RBA, one factor in the housing slump matters most: whether the paper losses on property prompt a deeper retrenchment in household spending – which accounts for almost 60 per cent of total spending in the economy.


“The wealth effect is going to kick in sometime soon, if it hasn’t already started,” said Cameron Kusher, a research analyst at property data and analysis firm Corelogic. “I think that the ongoing declines in the housing market are going to start to be more of a headache for the Reserve Bank.”

Sydney home values have slumped 13.2 per cent from their peak in mid-2017, when prices reached eye-watering levels, discouraging buyers just as a new wave of housing supply came online. On top of that, the banking royal commission uncovered widespread misconduct, resulting in a sharp tightening of lending standards.

That’s seen mortgage growth slow to just 0.2 per cent in January, the weakest monthly reading since 1984, when Australia was undertaking a sweeping deregulation program to revive the moribund economy. At the same time, credit for personal purchases dropped 2.8 per cent from a year earlier – the worst annual figure since October 2009.

The RBA meets a day before the release of fourth-quarter GDP that will provide another reading on consumption. A weak result three months ago combined with poor subsequent data prompted Lowe last month to drop a tightening bias in favour of a neutral policy stance.

Data out on Monday suggested the final quarter of 2018 may have been a bit lacklustre: company profits rose just 0.8 per cent compared with an expected 3 per cent, while inventories unexpectedly dropped. A report from Australia & New Zealand Banking Group showed that job advertisements slid 0.9 per cent in February for a fourth monthly decline.

Economists predict Australia’s economy expanded 0.5 per cent from the third quarter and 2.7 per cent from a year earlier – in line with Treasury’s estimated 2.75 per cent speed limit.



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