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The official cash rate remained unchanged in September at 2.5 per cent after the Reserve Bank of Australia (RBA) judged the current monetary policy setting to be “appropriate”.
According to Reserve Bank governor Glenn Stevens’ statement on monetary policy, the bank expects slightly below trend growth to continue as the economy rebalances as a result of the slowdown in the mining sector.
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“The economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment,” he said.
The housing market has continued to show strong growth in September, particularly in capital cities. According to RP Data figures, Sydney prices have surged by 8.6 per cent so far this year.
This level of growth has led to speculation about a possible property 'bubble'; however, the RBA’s semi-annual Financial Stability Review for September gave no indication that the bank has concerns of this nature.
Westpac chief economist Bill Evans said “our reading of the Review indicates that there is no high degree of concern from the bank around property market or household balance sheet excesses”.
Meanwhile, recent GDP figures released by the Australian Bureau of Statistics (ABS) show growth in the economy slowed in the June quarter.
Senior economist at Westpac Institutional Bank, Andrew Hanlan blamed the slowdown on several factors.
“This is not only due to the peaking of expenditure in the mining sector but also the lack of a response in domestic demand, specifically consumer spending and non-mining business investment, to the 225 [basis points] of rate cuts which the Reserve Bank has delivered since November 2011,” he said.
Housing Industry Association senior economist Shane Garrett said the GDP figures also showed a decline in new home construction.
“The performance of new home building was particularly disappointing, with a decline of 2.1 per cent during the quarter,” he said.
“The volume of new home building was still up by 8.5 per cent compared to the June 2012 quarter, although that base of last year was historically low,” he added.
Meanwhile, according to the Westpac-Melbourne Institute Index of Consumer Sentiment, the proportion of survey respondents who favoured real estate as a good place to invest savings rose from 24.6 per cent to 27.5 per cent, up 7.7 points since September last year.
The index indicates that the general rise in consumer confidence, now at its highest level since 2010, is about the prospects for the economy rather than how households feel about their own finances.
Mr Evans from Westpac said this rise was linked with the recent change in government, as responses collected following election day showed a marked lift in sentiment.
“I think it is reasonable to conclude that the election result played an important, if not leading, role in this strong boost to consumer sentiment,” he said.
