No rate rise before February
Australian home loan borrowers can breathe easy for the next four months – there will almost certainly be no rise in variable home loan rates before mid-February 2003.
The latest inflation figures suggest there is a lessening chance of the economy, housing market excluded, overheating in coming months.
Looking ahead, there is enough doubt about Australia’s ability to maintain its good economic performance to be cautious on rates. An ANU report predicts the worsening drought will drag growth down next year and is already having an impact.
Meanwhile, a forward indicator of economic activity in the US has fallen further reducing hopes for a pick-up soon in the speed of US recovery. Add to that the ongoing uncertainty over Iraq and the war on terror and it is hard to see the Reserve Bank raising interest rates before Christmas.
With no January rates meeting, it will be February at the earliest before we can expect a rate rise. And by then, who knows what the climate for rates will be like. The overheated housing market remains the big threat to interest rates and may force the RBA’s hand next year.
Although the annual inflation rate has risen to 3.2 per cent, above the RBA’s target band for interest rates, price pressures overall have been falling or at worst static in recent months. How can this be? The annual measure is simply the sum of the last four quarterly readings so the latest annual rate takes out the September quarter figure from 2001 replacing it with the just-released figure for the same period in 2002.
The 0.7 per cent rise in the September quarter CPI was not excessive but because the figure for same period a year before was a low 0.4, the annual figure has jumped up. The real culprits behind the annual rate over 3 per cent are the high quarterly figures from the first half of this year (0.9).
And when discounting the effects of volatile short-term price movements ‘underlying’ inflation is running at a more modest 2.5 per cent.
Thus, the RBA board will find no immediate inflationary threat to the economy when it meets on Melbourne Cup Day.