Scope for fall in interest rates

MORE economists are considering the possibility of further interest rate cuts in Australia.

WEAKER-than-expected home lending data and overall soft labour-market conditions are leading more economists to consider the possibility of further interest rate cuts in Australia as oil prices remain low and the economy slows after a decade-long mining-investment boom.

Official data yesterday showed the number of new housing financial approvals for owner occupation fell 0.7 per cent in November, undershooting economist’s expectations of a 1.7 per cent rise.

Investor loans fell 2.2 per cent in the month, taking the annual growth rate to 13 per cent — well down on a peak of around 40 per cent in the December 2013.

In a further sign that the housing market may be cooling, new Lending to owner occupiers — excluding refinancing — fell 0.8 per cent in the month to be 5.5 per cent lower than a year ago.

The number of home loan commitments by owner-occupiers for established houses fell 8.8 per cent year on year, while finance for the construction of new dwellings rose 7.6 per cent.

Economists expected home-lending data to slow further after the Australian Prudential Regulatory Authority announced enhanced oversight measures early last month and as the rate of growth in house prices continued to slow from record highs.

“We would expect that increased public jawboning has been reaffirmed in non-public conversations with lenders over the past several weeks, and for investor finance to continue moderating in 2015,” said Royal Bank of Canada chief economist Michael Turner.

The annual rate of capital City house price growth slowed to 7.9 per cent in December versus a peak growth rate of more than 10 per cent in April 2014, according to CoreLogic RP Data.

Benign inflation and moderating investor activity in the housing market could give the Reserve Bank of Australia more room to cut interest rates to deal with high unemployment.

Job advertisements rose a further 1.8 per cent in November, and the annual growth rate hit a three-and-a-half year high of 11.4 per cent, according to ANZ Bank, which compiles the data.

But ANZ said the improving trend in job ads is at odds with official employment data which continue to depict a rising unemployment rate due to a higher-than-usual rate of job losses.

“The good news is that the economy continues to produce new employment opportunities,” ANZ chief economist Warren Hogan said.

“The bad news is that this has not been quite enough to counteract the flow of new workers into the economy plus the ongoing loss of jobs in certain sectors.

“Low wages growth, together with the recent decline in oil prices, will feed through to relatively subdued inflation outcomes through 2015.”

He also saw a growing risk that the Australian dollar wouldn’t fall as much as the Reserve Bank hoped, as weak global economic growth and falling oil prices were causing global disinflation, which was pushing down the yield on offshore bonds.

The Australian dollar hit a three-week high of 82.53 US cents yesterday.

“We will be watching consumer confidence in the next few days as well as the official employment numbers on Thursday to ascertain the likelihood that the RBA Board will decide at some stage in the next few months that the economy can afford further interest rate reductions to help grow the non-mining economy a little stronger than it is at present.

“Right now we think the best course of action is for the RBA to maintain a steady hand on interest rates. But with global energy costs falling substantially, and inflation likely to be lower than previously thought, there is increasing scope for Australian interest rates to fall a little over the first half of 2015,” Mr Hogan said.

Economists expect a modest rise in employment to leave the unemployment rate at a 12-year high.