One of the biggest news this week was the surprise revelation yesterday that the Reserve Bank board acknowledged in the recently released minutes that there was a compelling case for cutting the cash rate again to a new record low before leaving it unchanged at 0.75 per cent at its November meeting.
The minutes showed that the board members poured over the disappointing data piling up at its door, including declining retail sales, a weaker outlook for household income and wages, and that inflation and GDP growth had both come in below forecast last year.
However, members agreed that further evidence on spending by households was required before drawing any conclusions about the effectiveness of its three rate cuts since June or government tax rebates.
“Having already delivered a substantial monetary stimulus in recent months, there was a case to wait and assess the effects of this stimulus, especially given the long and variable lags,” read the minutes released on Tuesday.
Economists said it was now a question of how long the board believes it should wait to cut next.
Philip Lowe’s deputy told a Sydney audience on Friday that, despite disquiet over sluggish retail activity, rising unemployment and stagnant wage growth, it was too early to judge the impact of this year’s three cash rate cuts.
“We started with an interest rate reduction in June, and here we are in November … (so) the most recent data we have at best is for October, so not much time has gone past,” Dr Debelle said at a Financial Services Institute of Australasia event.
The minutes showed board members noted wages growth would not likely accelerate beyond recent subdued forecasts, reflecting the views of most firms in the RBA’s liaison program.
Weaker September quarter retail volumes suggested to the board that consumption growth was likely to have remained stagnant despite government’s tax offset payments and its rate reduction in October.
Members blamed the near-term consumption downgrade on the effects of the drought on farm incomes and the downturn in housing construction on related businesses.
Our 10y Government bond this week has fallen back from a recent high of over 1.30% to currently 1.08% reversing some of the upward move from back in October when it hit a low of 0.90%.
On some other news we had a bumper corporate bond issuance in October which helped to move the YTD 2019 new issue of A$ supply to $11bn. This put the Aussie dollar market on target for a solid year but still short of the record volume of A$21bn in 2017. A key feature of recent deal activity has been a surge in lower rated bonds and strong investor demand for longer tenors (7-10years) reflecting the funds chase for yield and locking in higher returns.
Utility, consumer and telco players have been the most active issuers lately and with more corporate deals in the pipeline. Issuers are jumping on these low rates to borrow capital and expand their respective businesses.