Australia will have to "earn" its interest rate cuts from now on. All the low-hanging fruit has been plucked and we will have to see the economy slump further and unemployment climb sharply, to get the Reserve Bank to cut again.
It chopped by 4.25% in the biggest ever loosening of monetary policy in such a short time. It will now sit and wait for months, perhaps for the rest of the year, barring another slump in global markets or soaring unemployment levels.
Many market economists are maintaining their targets for the cash rate at 2%-2.5% by the end of the year, but many also are saying that the easing cycle is coming to an end.
The commentary this morning reinforces the feeling after reading RBA Governor Glenn Stevens' statement
that yesterday was it as far as rate cuts are concerned.
In fact there were suggestions that some analysts wouldn't be surprised if that was it for 2009 rate cuts from the RBA. Certainly the statement contained no clues for the immediate outlook for the rest of the year.
The 0.25% was as much a bit of "tidying up" of the cash rate to a nice round 3% than anything else. That the banks, led by the NAB, are playing hardball and not passing on much, or nothing of the cut, reinforces that feeling.
If the RBA had wanted to force a substantial rate cut through to borrowers, then it would have chopped by half a per cent or more. It is content with the amount of stimulus in the economy.
If the crunch or the recession don't inflict further, immediate damage on our banks and the economy generally, a return to the usual monthly "will they or won't they cut" speculation from the markets and pundits (like us) ahead and after each RBA board meeting is on the cards.
Consumer confidence figures out this morning confirm this view, recording the biggest rise in 8 months, a move that surprised Westpac which is one of the groups behind the survey, along with the Melbourne Institute.
As well housing finance figures for February were weaker than expected by the market, but the first home buyers’ grants continue to stimulate activity.
Australian housing finance commitments for owner-occupied housing rose 0.4 per cent in February, seasonally adjusted, to 56,235, the Australian Bureau of Statistics said on Wednesday.
Total housing finance by value rose by 1.3 per cent in February, seasonally adjusted, to $19.229 billion. The total value of loans increased to $19.2 billion, seasonally adjusted, in February from $18.9 billion in January, the ABS said
But the new home owners grant continues to provide the only growth in housing finance. New home construction finance commitments rose 2.6% in February, while finance commitments for the purchase of built new homes jumped 4.2%. There was no increase at all in the number of existing homes sold.
The ABS said that "in original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments increased from 26.5% in January 2009 to 26.9% in February 2009, the highest proportion since the series commenced in 1991.
The market had been expecting the number of owner-occupier housing finance commitments to rise by 2.0% in February.
The consumer confidence survey showed that the sentiment index rose 8.3% in April to 92.7 points from March, when it fell 0.2%.
April is however the 15th month that the index has been under 100, indicating pessimists outnumber optimists.
Westpac chief economist, Bill Evans described it as a "surprising'' result and added "the stimulus package is likely to be buoying consumers."
An index measuring consumers' expectations for economic conditions over the next 12 months increased 16.9% and opinions on whether now is a good time to buy a major household item gained 3.2%.
Both will add to the belief at the RBA that rate cuts are now on hold.
Goldman Sachs JBWere said this morning that:
While it is stretching the interpretation of the RBA's statement to suggest that the RBA cut interest rates to help ease the funding costs for the Australian banking system, it is of interest that the RBA would have been well aware of the banks' warnings that they may not pass on any interest rate reduction.
To be blunt, if the RBA really wanted borrowing rates lower it would have cut the cash rate by 50bp. The Governor has been explicit in the past that he is not targeting the cash rate but the borrowing rate faced by borrowers.
The tone of the statement suggests that the RBA is in no hurry to reduce rates again. We remain of the view that the RBA will recommence an easing cycle through the September/October period as the fiscal stimulus fades, the unemployment rate continues to move higher and the impact of declining bulk commodity prices will have a greater impact. However, the possibility that the RBA may leave rates unchanged in 2009 as the earlier easing takes effect and the fiscal stimulus is spent is a very real risk.