From Chief Economist, Bill Evans, today:
"Our reading of the Statement indicates a clear intention to restore rates to “average” relatively quickly. With the decision having been taken despite the evidence of weaker data it appears that the urgency to restore rates to these average levels will prevail. Lead indicators for the labour market are strong. There will be no further data released on retail sales or building approvals before the next Board meeting on May 4. That means that with the news on commodity prices and house prices likely to remain very buoyant, and complementing a strong employment story, there is every reason to believe the Bank will decide to move rates back to “average” in May. In the Statement there is a clue that the view might be that 4.50% is the “average” target. The Statement refers to “Interest rates to most borrowers nonetheless have been somewhat lower than average” whereas the prior Statement said “Interest rates to most borrowers nonetheless remain lower than average”."
Wesptac's Elliot Clarke on population growth:
"The recent pace of population growth in Australia has been strong in both absolute and relative terms. Australia’s population growth is now almost twice that estimated for the world as a whole for 2009. While it may not be that surprising for Australia to have more rapid population growth than other developed economies such as the US and UK, it is interesting to note that Australia’s population growth is also currently well-and-truly outpacing population growth in developing economies such as India, China and other Asian nations. By and large, this is the result of the strong inflow of migrants to Australia, arguably brought about by the buoyant domestic economy as well as the high standard of living...
The lack of dwelling investment at a time of rapid population growth has resulted in a significant demand/supply mismatch that has fed through to prices and hurt affordability. In addition, the growing population is also placing significant strains on other parts of Australia’s infrastructure, particularly in the large city centres in the eastern states. To allow for the efficient day-to-day movement of the population in these areas, the transport infrastructure will need to be improved and maintained. Essential services will also need to be expanded to cater for the basic needs of the growing population."
Finally, the always excellent Matthew Hassan had this to say on the RBA-housing nexus:
"Strong rises have again brought house prices to the fore both for policymakers and pundits. The RBA in particular has elevated residential property several notches on its ‘watchlist’. Although the Bank does not appear unduly concerned by current conditions the continued buoyancy of prices in early 2010 – despite a cumulative 140bp increase in mortgage rates – has been noted with the RBA observing that it was “desirable to avoid significant imbalances developing in the housing market.” Analytically, the main challenge at the moment is discerning whether recent price strength reflects lags – i.e. an ‘echo’ of the price pulse from heightened first home buyer activity late last year – or reslience to rate moves. Those arguing lags point to the sharp 24% decline in housing finance approvals since September as a warning of an imminent cooling in market demand. Those arguing resilience point to humming auction activity well into the new year and a ‘groundswell’ of opinion on housing – price-wise at least – that may mean activity is now being more driven by bullish expectations…
The next few months should resolve the ‘lags’ vs ‘reslience’ debate on housing. That said, the views are not mutually exclusive – we may see a lagged softening in demand that still contains an underlying market resilience. Judging the balance could become a more important feed into the RBA’s decision-making over the rest of the year."
