Welcome to this month’s edition of the Dot Monthly!
Another month goes by, another interest rate cut. Following the previous months blog discussing how we are in unprecedented territory, the trend continues with the cash rate at 0.75%. There is talk of negative interest rates and I’m sure you’re all wondering what quantitative easing is? This will be discussed below.
Let’s get into this month’s topics:
City Prices Rise In September
The revival in property prices in the major cities continued in September, with movement in prices for both houses and apartments, according to the latest figures from CoreLogic.
The national Home Value Index posted its largest monthly gain since March 2017, adding to improvements seen in July and August. Sydney, Melbourne, Brisbane, Canberra and Hobart all recorded significant growth in their house price indexes in the September Quarter, headed by a 3.6% quarterly rise in Sydney and a 3.4% increase in Melbourne. But, in annual terms, house price growth is still being led by Hobart and Canberra.
The September data from CoreLogic also shows solid uplift in capital city apartment markets. All capital cities except Brisbane and Perth recorded monthly rises, while Sydney (up 3.3%), Melbourne (up 3.3%) and Brisbane (up 1%) all reported quarterly increases in their indexes for apartments.
Nationally, the “combined capitals” index rose 1.2% for houses and 1.0% for apartments in September, with quarterly increases of 2.1% (houses) and 2.7% apartments.
A global trend toward negative interest rates
Already in place in Denmark, Japan and Sweden, negative cash rates – and the consequent release of the first -0.5% ten year fixed rate mortgage – have highlighted a global need to stimulate consumer spending, but is this the right move?
Whilst it’s naïve to assume the Reserve Bank of Australia (RBA) will blindly follow in the footsteps of other central banks, we cannot deny the impact that long-lasting shifts in global interest rates have on Australian policy.
Quantitative Easing: is it time to start printing money?
In parliament, the RBA’s Governor Philip Lowe did not rule out Quantitative Easing (QE) — as a second unconventional method that could be applied. Previously executed in the UK, Japan and the US, this tactic could be implemented if negative interest rates are not in Australia’s best interests. “I think, given the world we’re in, it is prudent to look at these things. As I said, it’s unlikely, but it is possible,” said Lowe.
“The world’s uncertain, and there are scenarios where we might decide that this is warranted. If that’s the case, it’s prudent for us to have done the work in advance to see what we would do. It’s really contingency planning. We’re thinking about what we might do,” he said.
The monetary policy of Quantitative Easing is relatively new to economics, but since its inception has been used across the globe.
Colloquially known as ‘money printing’, QE is a process where a central bank, like the RBA, uses their cash reserves to purchase existing government bonds, in order to pump money directly into the financial system.
These government bonds act as fixed-interest loan securities, to raise asset prices by improving future economic growth expectations and drive up the price of bonds to lower their yield (interest rate).
What has Dot been up to for the month?
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