Following coordinated policy easing by APRA & the RBA, home loan values rebounded 18% in the 6 months to November, seeing home prices lift >10% annualised, moving quickly towards our ‘mini-boom’ forecast of 10% y/y, especially with the RBA to keep easing. However, we still think ‘this time is different’, expecting a more muted response of activity to booming prices. Indeed, the surge in new loans has been largely offset by a faster pay-down rate on the back-book, meaning that credit growth actually slowed further in recent months to a cycle low; albeit we still expect modest acceleration ahead. We still think the economy needs more policy stimulus. We reiterate our dovish view the RBA will cut rates by 25bps in Feb, & again to ¼% in mid-20.
I don’t know if it is February. The RBA may want to see another weak labour market print first. But the odds still favour it coming.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
