RBA PREDICT STRONGER DWELLING ACTIVITY FIRMING 2010
Good news for the Australian property sector. In his announcement yesterday that interest rates would stay on hold, Governor of the Reserve Bank Glenn Stevens commented that while household spending is “likely to slow somewhat,” stronger dwelling activity and government spending “will start to provide more support to overall demand soon, and is likely to firm into 2010”.
Stevens is concerned that if the already record low interest rates are allowed to remain they may fuel a housing bubble and destabilize the economy. The change has been largely due to improvements in Australia’s second largest export market, China.
Paul Brennan, an economist at Citigroup Inc. in Sydney predicted “The next step will be for the Reserve Bank to begin to withdraw at least some of this accommodative setting,” starting in December with a quarter-point increase”.
Craig James, a senior economist with the Commonwealth Bank of Australia, suggests that Stevens is “certainly not suggesting that rate hikes are imminent.” “The Reserve Bank will want to ensure the economy can stand on its own two feet — without being propped up by the government — before deciding to lift rates,” James said.
Stevens also noted that home loan approvals had been solid, with housing prices rising over recent months indicated by increases in the median house price over the eight capitals. However, disturbingly, business borrowing was in decline as companies postponed investment plans in order to reduce debt financing.
Courier mail article.
