Australia faces risk trifecta as RBA to hold rates


SYDNEY • Australia’s economy faces a trifecta of risks that could disrupt household spending and the central bank’s outlook for faster economic growth and falling unemployment.

In minutes of its last policy meeting for the year, the Reserve Bank of Australia (RBA) struck a slightly dovish tone. It noted a “generalised tightening of credit availability” in the economy even as it’s stuck to the script of gradual improvement eventually culminating in an interest-rate increase.

“The outlook for household consumption continued to be a source of uncertainty because growth in household income remained low, debt levels were high and housing prices had declined,” the RBA said yesterday in Sydney. “Members noted that this combination of factors posed downside risks.”

Plunging property prices are beginning to overshadow governor Philip Lowe’s scenario of a sustained expansion that tightens the labour market and gradually lifts inflation. Sydney’s market has slumped 10% with little end in sight, and banks facing increased scrutiny are shying away from lending, threatening to exacerbate the downturn.

“The sentiment in these minutes is somewhat less confident about the Australian economy,” said Bill Evans, chief economist at Westpac Banking Corp. “Taking into account the attention given to the credit, housing, consumer and external risks, these minutes should be interpreted more dovishly than we have seen over the course of 2018.”

Traders are pricing in no interest- rate increase for next year — indeed, the market shows a very slight chance of a cut.

Australia is in the unusual position of solid growth and declining unemployment, amid a record-low 1.5% cash rate, at a time when property is tumbling in its two biggest cities. The OECD said while housing is on track for a soft landing, it also warned those are exceedingly rare and authorities should prepare for the worst.

The RBA noted that liaison with developers indicated demand for new housing in eastern Australia had eased “and some developers reported that this decline in demand had become more pronounced”. It said “demand for off-the-plan apartments had declined significantly since mid-2017”.

This also poses a threat to consumption as fewer people setting up house means less demand for big ticket items like furniture and electronics, hurting already weak retailers.

The RBA met on Dec 4, a day before the release of third-quarter GDP that came in weaker than forecast as household spending slowed sharply.

That made the bank’s optimistic forecasts for a “more than 3%” increase in growth and average consumption stand out in the minutes. The economy actually expanded an annual 2.8% in the period.