Australia rate risk grows as house prices jump and IMF chimes in
A separate report from PropTrack foresaw further gains ahead given booming migration, a tight rental market and a supply squeeze as home building lagged far behind population growth.
Chances of an imminent hike in Australian interest rates grew on Wednesday after data showed house prices rebounding to near-record highs and the International Monetary Fund recommended tightening monetary and fiscal policy screws to curb inflation. Markets responded by pricing in a near-70 per cent chance that the Reserve Bank of Australia (RBA) will raise rates by a quarter point to 4.35 per cent when it meets on November 7, ending four months of keeping rates on hold.
High readings for inflation and consumer spending had already suggested policy might be too loose, and that view was reinforced by a CoreLogic report showing house prices had regained all the ground lost during the RBA's previous 12 rate hikes.
"The turnaround in property prices has been quite remarkable," declared Gareth Aird, head of Australian economics at CBA. "The RBA's 400 basis points of tightening reduced home borrower capacity by 30 per cent, but property prices are now back to their previous peak."
So far this year, values in Sydney, Perth and Brisbane are all up more than 10 per cent, adding billions to household wealth at a time when the RBA would really rather they not be spending.
A separate report from PropTrack foresaw further gains ahead given booming migration, a tight rental market and a supply squeeze as home building lagged far behind population growth.
IMF WEIGHS IN
The IMF also weighed in on Wednesday by arguing tighter monetary and fiscal policy was needed in order to bring inflation back to the RBA's target band of 2-3 per cent. In its regular review of Australia, the IMF staff noted the resilience of the economy as the jobless rate remained near a 50-year low of 3.6 per cent, while economic output was estimated to be running at 1 per cent above potential. "Staff therefore recommend further monetary policy tightening to ensure that inflation comes back to the target range by 2025 and minimize the risk of de-anchoring inflation expectations," they said.
They also called for different levels of government to take a more measured approach to infrastructure investment as massive projects compete for scarce resources and push up costs.
S&P Global Ratings estimates capital expenditure by Australian states and territories will be a record A$320 over the next four years. "Each project on its own probably doesn't add that much to national inflation," said Martin Foo, lead analyst at S&P Global Ratings. "But the problem is that if you add up all of these projects together, then they are having a significant impact."
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.
RECOMMENDED STORIES
Retirement Planning: SIP+SWP combination; Rs 15,000 monthly SIP for 25 years and then Rs 1,52,000 monthly income for 30 years
Retirement Calculator: 40 years of age, Rs 50,000 monthly expenses; what should be retirement corpus and monthly investment
SBI 444-day FD vs Union Bank of India 333-day FD: Know maturity amount on Rs 4 lakh and Rs 8 lakh investments for general and senior citizens
EPF vs SIP vs PPF Calculator: Rs 12,000 monthly investment for 30 years; which can create highest retirement corpus
Home loan EMI vs Mutual Fund SIP Calculator: Rs 70 lakh home loan EMI for 20 years or SIP equal to EMI for 10 years; which can be easier route to buy home; know maths
09:31 AM IST