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| Reserve Bank of Australia keeps cash rate at 2% – live updates | |
| (35 minutes later) | |
| 4.02am GMT04:02 | |
| SUMMARY | |
| 3.58am GMT03:58 | |
| The markets (2) | |
| The ASX/S&P200 is more or less back to where it was when we started out. | |
| After a sharp fall just after the announcement (no cut=no cheap money), it bounced back up when traders digested the fine print where Glenn Stevens gave himself room for a cut in coming months. | |
| 3.53am GMT03:53 | |
| And so it would seem the RBA is slightly more happy about our economy than it was a month ago. And yet just to keep us all guessing it seems more willing than a month ago to lower rates if need be. | |
| What that would suggest is that should the US Fed not lower rates, and should any economic data take a downward turn, the RBA might just be willing to cut rates at least one more time. | |
| But all things being equal, it would seem they’re happy with them where they are. | |
| And with that we turn our attention to the Melbourne Cup live blog with Russell Jackson here. | |
| For what it is worth, my tips are Trip to Paris, Bondi Beach and Red Cadeaux. Good luck and thanks for reading! | |
| 3.50am GMT03:50 | |
| 3.47am GMT03:47 | |
| Looking at the statement it would seem the RBA is becoming less worried about housing prices. | |
| In October it said that “prices continue to rise strongly in Sydney and Melbourne”. Today they dropped the “strongly” adjective to make it: | |
| Dwelling prices continue to rise in Melbourne and Sydney, though the pace of growth has moderated of late. | |
| It remains unconcerned about the value of the dollar, with no change in the wording regarding its value. | |
| 3.46am GMT03:46 | |
| Dollar up and down | |
| Traders not quite sure where it’s going after that statement. | |
| Updated at 3.46am GMT | |
| 3.43am GMT03:43 | |
| Ok. Back to Greg, who’s been reading the statement more carefully than me. | |
| As Martin and Stephen Koukoulas noted, the big change in the statement is the final paragraph. | |
| Last month the RBA finished by saying: “The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.” | |
| All pretty dull. | |
| But today the wording was changed to read: | |
| At today’s meeting the Board judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate at this meeting. | |
| Now this would suggest an end to rate cuts. But the very next line provides a suggestion that more cuts could be on the way: | |
| Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand. | |
| No wonder the value of the dollar went up and down half a cent in the minute after the announcement. Poor currency traders. | |
| 3.39am GMT03:39 | |
| But it does add: | |
| Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand. | |
| So it’s a bit of the usual “on the one hand” type stuff. | |
| 3.37am GMT03:37 | |
| The RBA's statement | |
| Read the full statement from RBA governor Glenn Stevens here. | |
| But the highlight is probably this phrase: | |
| At today’s meeting the Board judged that prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate at this meeting. | |
| 3.33am GMT03:33 | |
| Could the Melbourne Cup be as exciting? | |
| 3.30am GMT03:30 | |
| IT'S A HOLD!!! | |
| CASH RATE STAYS AT 2%. | |
| 3.26am GMT03:26 | 3.26am GMT03:26 |
| And lastly as ever he value of the dollar hovers over the decision. Currently the dollar is trading at around US71.71c, a bit higher than it has been of late but still well below where it has been for the past 18 months: | And lastly as ever he value of the dollar hovers over the decision. Currently the dollar is trading at around US71.71c, a bit higher than it has been of late but still well below where it has been for the past 18 months: |
| The US Federal Reserve is expected to finally raise its interest rates in the coming months – possibly in December. That will see the value of the US dollar strengthen some more (much of it is already priced in) and the value of our dollar fall. | The US Federal Reserve is expected to finally raise its interest rates in the coming months – possibly in December. That will see the value of the US dollar strengthen some more (much of it is already priced in) and the value of our dollar fall. |
| Largely this means the movement of our dollar is out of our hands. Were the RBA to cut today it certainly would see the value fall, but staying put would not set off a rise in the manner that it did back in 2012-13 whenever the RBA did nothing. | Largely this means the movement of our dollar is out of our hands. Were the RBA to cut today it certainly would see the value fall, but staying put would not set off a rise in the manner that it did back in 2012-13 whenever the RBA did nothing. |
| No one is thinking a rate rise for us in on the cards any time soon. And the RBA may believe that it does not need to cut rates to get the dollar down because the Fed will do its work for it. | No one is thinking a rate rise for us in on the cards any time soon. And the RBA may believe that it does not need to cut rates to get the dollar down because the Fed will do its work for it. |
| We shall see, and we shall also see in a few minutes if the governor’s statement has anything new to say that may indicate what it is thinks of the economy and what the RBA can do – if anything – about it. | We shall see, and we shall also see in a few minutes if the governor’s statement has anything new to say that may indicate what it is thinks of the economy and what the RBA can do – if anything – about it. |
| 3.23am GMT03:23 | 3.23am GMT03:23 |
| One factor that will be in the RBAs thinking is the moves of the big four banks to raise rate independently over the past month. The moves (as I wrote about here) were in response to new measures brought in by the financial regulator Apra. | One factor that will be in the RBAs thinking is the moves of the big four banks to raise rate independently over the past month. The moves (as I wrote about here) were in response to new measures brought in by the financial regulator Apra. |
| The regulation meant banks had to raise rates if they wanted to maintain their level of profitability. | The regulation meant banks had to raise rates if they wanted to maintain their level of profitability. |
| Largely this is what Apra wanted to happen – part of the reason for the regulations was to try to remove speculative and risky lending. Higher interest rates deter this to an extent. They also mean the RBA can cut rats or keep rates lower for longer and have less concerns about setting off a bout of risky borrowing. | Largely this is what Apra wanted to happen – part of the reason for the regulations was to try to remove speculative and risky lending. Higher interest rates deter this to an extent. They also mean the RBA can cut rats or keep rates lower for longer and have less concerns about setting off a bout of risky borrowing. |
| The regulation were first targeted at investment lending and as a result the banks first increased their mortgage rates for investment loans. This has seen a sharp fall in the growth of investment housing credit: | The regulation were first targeted at investment lending and as a result the banks first increased their mortgage rates for investment loans. This has seen a sharp fall in the growth of investment housing credit: |
| The RBA would not be displeased with this, but it may be concerned that the new mortgage rate rises will have the same impact on owner-occupiers – a group the RBA is less worried about. | The RBA would not be displeased with this, but it may be concerned that the new mortgage rate rises will have the same impact on owner-occupiers – a group the RBA is less worried about. |
| A rate cut today would counteract the rate rises of the Big 4 banks, but likewise the RBA may decide to wait and see, given the impact of the rate rises by the banks has yet to actually be felt by home owners. | A rate cut today would counteract the rate rises of the Big 4 banks, but likewise the RBA may decide to wait and see, given the impact of the rate rises by the banks has yet to actually be felt by home owners. |
| 3.18am GMT03:18 | 3.18am GMT03:18 |
| But what is going to increase demand? Today the RBA released its latest index of commodity prices and just in case you have been asleep since 2012, it reminded us all that the mining boom is done: | But what is going to increase demand? Today the RBA released its latest index of commodity prices and just in case you have been asleep since 2012, it reminded us all that the mining boom is done: |
| The index is now at a level not seen since June 2006 (and incidentally the graph really shows how odd was the time from 2005-2011). So don’t expect any great influx of investment from out west. At least we can keep exporting our commodities to China … | The index is now at a level not seen since June 2006 (and incidentally the graph really shows how odd was the time from 2005-2011). So don’t expect any great influx of investment from out west. At least we can keep exporting our commodities to China … |
| But here the news isn’t flash either. Yesterday the latest purchasing managers index from China showed things are pretty ordinary over there as well. It found that the PMI, which gives a snapshot of operating conditions in the manufacturing economy, was 48.3 in October. A figure below 50 means things are getting worse. The good news is this was an improvement from the 47.2 in September. | But here the news isn’t flash either. Yesterday the latest purchasing managers index from China showed things are pretty ordinary over there as well. It found that the PMI, which gives a snapshot of operating conditions in the manufacturing economy, was 48.3 in October. A figure below 50 means things are getting worse. The good news is this was an improvement from the 47.2 in September. |
| So if you like your glass half full, you can say that at least things aren’t as bad as they were. | So if you like your glass half full, you can say that at least things aren’t as bad as they were. |
| 3.15am GMT03:15 | 3.15am GMT03:15 |
| The other big question though is why would the RBA want to get people taking out more loans to build more houses. Yes construction is a life blood of our economy – and the housing sector is a vital part – but have you seen how much debt we’re in at the moment? | The other big question though is why would the RBA want to get people taking out more loans to build more houses. Yes construction is a life blood of our economy – and the housing sector is a vital part – but have you seen how much debt we’re in at the moment? |
| The RBA recently revised its calculations for the level of household debt to disposable income. The good news was that it lowered its estimate of total debt, the bad news is its calculations show the levels of debt are rising faster than was previously though. | The RBA recently revised its calculations for the level of household debt to disposable income. The good news was that it lowered its estimate of total debt, the bad news is its calculations show the levels of debt are rising faster than was previously though. |
| In June this year the ratio of housing debt to disposable income was 132.8, compared to 119.2 when the RBA began cutting rates in November 2011. | In June this year the ratio of housing debt to disposable income was 132.8, compared to 119.2 when the RBA began cutting rates in November 2011. |
| The rise in the ratio of household debt over the past 3 years is now getting close to the levels seen during the housing boom of the early 2000s. The difference is back then the ratio of housing debt to income was in the 90s | The rise in the ratio of household debt over the past 3 years is now getting close to the levels seen during the housing boom of the early 2000s. The difference is back then the ratio of housing debt to income was in the 90s |
| Cutting rates lifts asset prices, and is supposed to generate income and inflation growth. Alas central banks around the world have seen it raise asset prices, see inflation stay flat and debt levels increase. | Cutting rates lifts asset prices, and is supposed to generate income and inflation growth. Alas central banks around the world have seen it raise asset prices, see inflation stay flat and debt levels increase. |
| Australia already has some of the highest debt to income ratios in the world, does the RBA really want them to increase, if lowering rates yet again will likely do little to improve overall demand in the economy? | Australia already has some of the highest debt to income ratios in the world, does the RBA really want them to increase, if lowering rates yet again will likely do little to improve overall demand in the economy? |
| 3.09am GMT03:09 | 3.09am GMT03:09 |
| The drop off in dwelling approvals is broadly the same across the nation – but Victoria stands out as being one of the more severe: | The drop off in dwelling approvals is broadly the same across the nation – but Victoria stands out as being one of the more severe: |
| While things are going backwards in WA due to the end of the mining boom, oddly, in Victoria there has been such a drop in building approvals that it has gone from an annual growth of 31.1% in February this year to now just 0.6%. | While things are going backwards in WA due to the end of the mining boom, oddly, in Victoria there has been such a drop in building approvals that it has gone from an annual growth of 31.1% in February this year to now just 0.6%. |
| And the big reason is the end of the apartment building boom. In February – when the RBA cut rates, non-housing approvals in Victoria were growing at an annual rate of 64.3%. Seven months later and the annual growth in September showed a fall of 5.1%. | And the big reason is the end of the apartment building boom. In February – when the RBA cut rates, non-housing approvals in Victoria were growing at an annual rate of 64.3%. Seven months later and the annual growth in September showed a fall of 5.1%. |
| Does the RBA see that and think, well that’s just a sign that this period of rates has done all it can and it is time to let things wash out, or do they think the fall is too quick, and another rate cut is needed to get people building? | Does the RBA see that and think, well that’s just a sign that this period of rates has done all it can and it is time to let things wash out, or do they think the fall is too quick, and another rate cut is needed to get people building? |
| 3.02am GMT03:02 | 3.02am GMT03:02 |
| A big factor for the RBA will be the housing market. Most surveys show the fire going out slightly, with price rises and auction clearing rates falling from their peaks of earlier in the year. | A big factor for the RBA will be the housing market. Most surveys show the fire going out slightly, with price rises and auction clearing rates falling from their peaks of earlier in the year. |
| Yesterday the ABS released its latest building approvals figures. They also showed that the peak occurred around March this year: | Yesterday the ABS released its latest building approvals figures. They also showed that the peak occurred around March this year: |
| The main reason for the slowing has been the drop off in apartment building approvals. The housing boom since the RBA began cutting rate this day four years ago has been more for apartments/flats etc than it has been for houses: | The main reason for the slowing has been the drop off in apartment building approvals. The housing boom since the RBA began cutting rate this day four years ago has been more for apartments/flats etc than it has been for houses: |
| It reached a point where in March this year for the first time ever there we more approvals for non-houses. But that looks to have stopped – and stopped quickly. | It reached a point where in March this year for the first time ever there we more approvals for non-houses. But that looks to have stopped – and stopped quickly. |
| 2.56am GMT02:56 | 2.56am GMT02:56 |
| The economy right now is as it has been for a couple years now – pretty flat. Employment is holding up OK (if you trust the data), and there are some smallish signs of good news if you choose to put your faith in them. | The economy right now is as it has been for a couple years now – pretty flat. Employment is holding up OK (if you trust the data), and there are some smallish signs of good news if you choose to put your faith in them. |
| The change of government has seen consumer confidence improve. Today the ANZ-Roy Morgan consumer confidence figures showed people were more confident than they have been since the start of February 2014. | The change of government has seen consumer confidence improve. Today the ANZ-Roy Morgan consumer confidence figures showed people were more confident than they have been since the start of February 2014. |
| But I’m of the view that consumer confidence is mostly a quasi-political poll. Dumping Abbott makes people feel better because they had little love for him or his performance. Will that actually translate into people making decisions about what they spend or invest? I am less sure. | But I’m of the view that consumer confidence is mostly a quasi-political poll. Dumping Abbott makes people feel better because they had little love for him or his performance. Will that actually translate into people making decisions about what they spend or invest? I am less sure. |
| And also today the Dun & Bradstreet’s Business Expectations Index was released showing no signs of improvement due to the leadership change. The average of the survey’s measures of sales, profits, employment and investment has dropped to 17.7 points for Q1 2016, down from 21.8 points for Q4 2015. | And also today the Dun & Bradstreet’s Business Expectations Index was released showing no signs of improvement due to the leadership change. The average of the survey’s measures of sales, profits, employment and investment has dropped to 17.7 points for Q1 2016, down from 21.8 points for Q4 2015. |
| And while 32% of those surveyed believed Turnbull would have a positive effect and only 3% thought he was a negative for business, 57% thought he’d make no change. | And while 32% of those surveyed believed Turnbull would have a positive effect and only 3% thought he was a negative for business, 57% thought he’d make no change. |
| So if the RBA is hoping the leadership change will spur people’s “animal spirits” they might decide a rate cut will be needed to help. | So if the RBA is hoping the leadership change will spur people’s “animal spirits” they might decide a rate cut will be needed to help. |
| Updated at 3.07am GMT | Updated at 3.07am GMT |
| 2.49am GMT02:49 | 2.49am GMT02:49 |
| 2.44am GMT02:44 | 2.44am GMT02:44 |
| A major reason for the low inflation figures was a fall in the prices of goods we buy from overseas. The price of “tradables” – goods and services whose price is determined overseas rather than here (as for example is the case with things like health and education costs) – fell 0.3% in the past 12 months. | A major reason for the low inflation figures was a fall in the prices of goods we buy from overseas. The price of “tradables” – goods and services whose price is determined overseas rather than here (as for example is the case with things like health and education costs) – fell 0.3% in the past 12 months. |
| One of the biggest falls was in the price of communication products (which as an aside, surprised me, given the price I had to pay for my latest phone!), but also petrol fell 1.7% in the past quarter. | One of the biggest falls was in the price of communication products (which as an aside, surprised me, given the price I had to pay for my latest phone!), but also petrol fell 1.7% in the past quarter. |
| But while the rise and fall of tradable prices is largely out of our hands, the movement of prices of non-tradeables is a very good indicator of demand in the economy, and it’s pretty weak: | But while the rise and fall of tradable prices is largely out of our hands, the movement of prices of non-tradeables is a very good indicator of demand in the economy, and it’s pretty weak: |
| Growth of 2.6% is pretty much at levels you’d normally associate with recessions – and it is just above where it was during the GFC. | Growth of 2.6% is pretty much at levels you’d normally associate with recessions – and it is just above where it was during the GFC. |
| So the RBA doesn’t have to worry about cutting rates setting off inflation – the big question is whether it thinks cutting rates will have much of an impact. | So the RBA doesn’t have to worry about cutting rates setting off inflation – the big question is whether it thinks cutting rates will have much of an impact. |
| 2.40am GMT02:40 | 2.40am GMT02:40 |
| The big factor in play at the moment is inflation. Last week’s consumer price index figures had it growing at just 1.5% – well below the RBA’s 2%-3% target band. | The big factor in play at the moment is inflation. Last week’s consumer price index figures had it growing at just 1.5% – well below the RBA’s 2%-3% target band. |
| The RBA’s “core inflation” figures, which take out some of the more erratic price movements were both low as well – the trimmed mean was running at 2.1% and the weighted median at 2.2%: | The RBA’s “core inflation” figures, which take out some of the more erratic price movements were both low as well – the trimmed mean was running at 2.1% and the weighted median at 2.2%: |
| Since the GFC, inflation has been dead around the world, and thus around the world central banks around the world have been trying to get inflation going by way of cutting interest rates. | Since the GFC, inflation has been dead around the world, and thus around the world central banks around the world have been trying to get inflation going by way of cutting interest rates. |
| 2.39am GMT02:39 | 2.39am GMT02:39 |
| Before we look at the things the RBA will be considering it is worth remembering where we are at. Even with recent rises in mortgage rates by the big four banks, the standard variable rate is still at an astonishingly low level: | Before we look at the things the RBA will be considering it is worth remembering where we are at. Even with recent rises in mortgage rates by the big four banks, the standard variable rate is still at an astonishingly low level: |
| At 5.45% it is at a level lower than any time since July 1968 – a time so long ago that people literally could not whinge by saying “they can put a man on the moon but they can’t...”. | At 5.45% it is at a level lower than any time since July 1968 – a time so long ago that people literally could not whinge by saying “they can put a man on the moon but they can’t...”. |
| A cut today would see the average fall to 1964 levels – a time when people could say, so this band The Beatles, you reckon they’ll be more than flash in the pan? | A cut today would see the average fall to 1964 levels – a time when people could say, so this band The Beatles, you reckon they’ll be more than flash in the pan? |
| 2.29am GMT02:29 | 2.29am GMT02:29 |
| The first Tuesday in November is synonymous with horse racing, but has also been associated with a number of interest rates decisions. From 2006 to 2011 the RBA either cut or raised interest rates every November. Most famously in 2007 during the election campaign it increase interest rates, which dealt the then Howard government a massive blow to its already slim chances of winning the election. | The first Tuesday in November is synonymous with horse racing, but has also been associated with a number of interest rates decisions. From 2006 to 2011 the RBA either cut or raised interest rates every November. Most famously in 2007 during the election campaign it increase interest rates, which dealt the then Howard government a massive blow to its already slim chances of winning the election. |
| Today’s decision will have little political impact – for so long have we had low interest rates that the mantra of “interest rate will always be lower under a...” has pretty much been consigned to the scrap heap. | Today’s decision will have little political impact – for so long have we had low interest rates that the mantra of “interest rate will always be lower under a...” has pretty much been consigned to the scrap heap. |
| This time last week there was little likelihood that the RBA would cut rates, but after the weak inflation figures last Wednesday today has become a “live decision” with the market unsure of what the RBA will do. | This time last week there was little likelihood that the RBA would cut rates, but after the weak inflation figures last Wednesday today has become a “live decision” with the market unsure of what the RBA will do. |
| After the inflation figures came out, the market was factoring a 67% chance that the RBA would cut. Since then things have cooled down a bit, but the odds of a rate cut are still shorter than you’ll get on the favourite for the cup. | After the inflation figures came out, the market was factoring a 67% chance that the RBA would cut. Since then things have cooled down a bit, but the odds of a rate cut are still shorter than you’ll get on the favourite for the cup. |
| 2.27am GMT02:27 | 2.27am GMT02:27 |
| The markets | The markets |
| Looks like the markets fancy No Change. The ASX/S&P200 is up 1.25% at 5,230 points after getting a bit of a hammering yesterday thanks to another bad day for bank stocks. The dollar is also up at US71.68c, suggesting traders don’t expect Glenn Stevens and his cohorts to cut. | Looks like the markets fancy No Change. The ASX/S&P200 is up 1.25% at 5,230 points after getting a bit of a hammering yesterday thanks to another bad day for bank stocks. The dollar is also up at US71.68c, suggesting traders don’t expect Glenn Stevens and his cohorts to cut. |
| Anyway, I’m handing the main stage to Greg now. | Anyway, I’m handing the main stage to Greg now. |
| 2.20am GMT02:20 | 2.20am GMT02:20 |
| The odds | The odds |
| On this day of all days it’s appropriate to have a look at the betting on the RBA decision. | On this day of all days it’s appropriate to have a look at the betting on the RBA decision. |
| According to Sportsbet, the eternal runner No Change is the favourite at $1.35, followed by Quarter Point Cut at $3 and then More Than Quarter Point at $11. At the back is Quarter Point Increase at $34 and finally More Than Quarter Point Increase at $101. | According to Sportsbet, the eternal runner No Change is the favourite at $1.35, followed by Quarter Point Cut at $3 and then More Than Quarter Point at $11. At the back is Quarter Point Increase at $34 and finally More Than Quarter Point Increase at $101. |
| 2.15am GMT02:15 | 2.15am GMT02:15 |
| Good afternoon | Good afternoon |
| Good afternoon and welcome to our live blog on the RBA’s monthly monetary policy decision. After two rate cuts this year already, will the board go for the hat-trick on Melbourne Cup day? | Good afternoon and welcome to our live blog on the RBA’s monthly monetary policy decision. After two rate cuts this year already, will the board go for the hat-trick on Melbourne Cup day? |
| Just a couple of weeks ago it looked unlikely. But the decision by the big lenders to increase their mortgage rates and continued low inflation has prompted some to predict that the RBA will step in and take the pressure off borrowers. | Just a couple of weeks ago it looked unlikely. But the decision by the big lenders to increase their mortgage rates and continued low inflation has prompted some to predict that the RBA will step in and take the pressure off borrowers. |
| (That assumes of course that the banks would react to any RBA cut by in turn reducing the rates they’ve only just increased. But we’re maybe getting ahead of ourselves here.) | (That assumes of course that the banks would react to any RBA cut by in turn reducing the rates they’ve only just increased. But we’re maybe getting ahead of ourselves here.) |
| Greg Jericho will be along shortly to take you through the main points in the buildup and I’ll keep an eye on the markets and the betting as we go. | Greg Jericho will be along shortly to take you through the main points in the buildup and I’ll keep an eye on the markets and the betting as we go. |
| Updated at 2.20am GMT | Updated at 2.20am GMT |