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How’s the Market?

ByGeorgia Holland

Buyer sentiment continues to be heavily influenced by the combination of local area market conditions and the overall macroeconomic environment.

Reserve Bank governor Philip Lowe has said Australians should “expect an extended period of low interest rates” and defended the the bank’s inflation targeting regime, saying the banks was “strongly committed” to achieving its target.

Speaking at the annual Australian Business Economists Anika Foundation lunch in Sydney, Dr Lowe said the RBA board “is prepared to provide additional support by easing monetary policy” if growth in economic demand “is not sufficient” to lift inflation “in a reasonable time-frame”.

The Australian dollar fell as much as 0.2 per cent to US69.65¢.

“It is highly unlikely that we will be contemplating higher interest rates until we are confident that inflation will return to around the midpoint of the target range,” Dr Lowe said.

Consumer price data for the June quarter will be released next Wednesday. Economists expect the trimmed measure to dip to 1.5 per cent, on a year-on-year basis, and for headline inflation to tick higher to 1.4 per cent, according to Bloomberg. “Low inflation is the norm,” said CBA chief economist Michael Blythe. “Policy stimulus is unlikely to push inflation rates higher.”

The cavalry is already riding to support Australia’s flagging economy in the shape of recently delivered income tax cuts and reductions in interest rates in June and July, but as the dust settles, things still point to the need for the use of even more firepower.

If news this week of further downgrades to the global growth outlook by the International Monetary Fund are not cause for added concern about Australia’s prospects, more granular data on the domestic front should spur doubt.

Job vacancies for skilled workers advertised online posted a sixth straight month of decline in June, according to a government report. Vacancies dropped 6.7 per cent from a year earlier, the biggest decline in more than five years.

Many economists are forecasting unemployment will rise, not fall, something that will test the nerve of the RBA, which fears the ugly a scenario of more people out of work at a time of record household debt.

While more time is needed to see if lower interest rates and increased cash in the pockets of consumers will lift the economy, there is a sneaking feeling it won’t be enough.

Westpac chief economist Bill Evans this week forecast that the RBA would cut interest rates again in October and February, taking the official cash rate down to 0.5 per cent from 1.0 per cent now, pointing to the problem of softness in the job market.

That’s not good news for the Reserve Bank which has set itself the task of lowering the unemployment rate to 4.5 per cent, from 5.2 per cent now.

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