Property slowdown gives RBA room for election campaign rate cut

The bank has, over recent months, signalled it is open to a rate cut given the performance of the local economy and growing international headwinds.

Those headwinds were in new RBA figures on Tuesday which showed housing credit grew by 0.2 per cent in March, the equal slowest growth rate in more than 34 years. Annual growth fell to 4 per cent, its slowest rate on record.

Lending to owner-occupiers grew by 5.7 per cent over the past year, a 3.5-year low, while lending to investors for housing at 0.7 per cent is the slowest since records began.

Personal credit dropped by 0.3 per cent in the month to be 2.8 per cent lower through the past year, the worst performance since the depths of the Global Financial Crisis.

Mr Shorten, campaigning in Perth where house prices have been falling for the past three years, said the Reserve Bank had to make its decision on interest rates independent of government pressure.


«I think, though, that if they felt they had to do that, that’s not a reflection on the Reserve Bank, but it is a reflection on the Australian government, isn’t it?» he said.

«This is a government who’s boasted about their strong economic management, but the fact that we’re even talking about an interest rate cut shows the anaemic weakness in the current government’s economic management.»

Treasurer Josh Frydenberg accused Mr Shorten and shadow treasurer Chris Bowen of ignoring «simple facts» around the economy.

«Compared to when the Coalition came to government, growth is higher, unemployment is lower, investment is stronger, there are fewer people on welfare and a record number of Australians with a job,» he said.

«Furthermore, our budget is back in the black and back on track, with the first surplus in more than a decade.

«The Australian people can see through the Labor Party and know that because they can’t manage money, they’re coming after theirs.»

AMP Capital chief economist Shane Oliver said a concern for the Reserve Bank is that inflation could actually be even lower than what is being measured by the Australian Bureau of Statistics.

«Statistical measures of inflation tend to overstate actual inflation by 1 to 2 per cent because statisticians have trouble actually adjusting for quality improvements, and so some measured price rises often reflect quality improvements,» he said.

«In other words, 1.3 per cent inflation as currently measured could mean we are actually in
deflation. And there are problems with deflation.»

UBS senior economist George Tharenou said the credit figures on top of other indicators about the relative weakness of the economy pointed to the Reserve Bank cutting interest rates on Tuesday.»

«Credit growth is likely to slow to less than 2 per cent in 2020. Given this, coupled with a per capita recession already, unemployment is likely to rise,» he said.

«Following the weaker than expected first quarter CPI, we now think to keep inflation targeting credibility, the RBA may feel ‘compelled’ to cut 25 basis points in May and again in August.»

Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

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