The central bank is expected to keep the cash rate at an all-time low until at least February faced with an economy that will likely travel at a sub-trend pace for some time yet.
The Reserve Bank of Australia (RBA) will hold its final board meeting of the year on Tuesday when economists widely expect it to keep the cash rate at 2.5 per cent where it has stood since August. The board does not usually meet in January.
TD Securities head of Asia-Pacific research Annette Beacher expects RBA governor Glenn Stevens will continue to raise concerns over the strength of the Australian dollar, rather than hint at further rate cuts.
“We are of the view that rising house price inflation and the recent spark in credit growth prevents entertaining another cash rate cut,” she said in a note to clients.
Even so, TD Securities own monthly inflation data released on Monday show prices remaining benign should there be a need for lower rates next year.
Its inflation gauge rose by a modest 0.2 per cent in October for an annual rate of just 2.4 per cent and in the lower half of the RBA’s two to three per cent target band.
While other new data showed house prices in Australia’s eight capital cities rising by an average of just 0.1 per cent in November, annual home values grew by eight per cent, the fastest pace since October 2010.
At the same time, building approvals fell only 1.8 per cent in October despite surging by 16.9 per cent the previous month.
“The upward momentum to building approvals is impressive and augurs well for new home building activity heading into a new year,” Housing Industry Association chief economist Harley Dale said.
However, while home building looks set to help fill the vacuum left by a fading mining investment boom, the manufacturing outlook remains uncertain.
The Australian Industry Group’s performance of manufacturing index fell 5.4 points in November to 47.7, and below the key 50-point mark that separates expansion from contraction.
The group’s chief executive Innes Willox said the mild lift in new orders immediately after the September federal election had already dried up, not helped by the stubbornly high Australian dollar.
“The dollar and fierce import competition continue to take their toll, as many businesses struggle to maintain market share in an environment of generally weak demand for local goods and equipment,” he said.
Meanwhile, further inputs into Wednesday’s national accounts were released that left economists sticking to a forecast growth increase of about 0.7 per cent in the September quarter, and slightly faster than the 0.6 per cent rise recorded in the previous three months.
However, this would still leave the annual rate at 2.5 per cent and well short of the 3.25 per cent rate that is usually regarded as trend growth.
Gross operating company profits grew by a stronger than expected 3.9 per cent but a fall in business inventories will detract from growth in the quarter.