RBA may hold rate rise

Weaker than expected building approvals figures could prompt the central bank to postpone an interest rate rise next month, despite a tightening job market.

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Economists say the Reserve Bank of Australia might want to see upcoming inflation numbers before tightening monetary policy.

However, it comes after the release of strong job vacancy figures on Thursday, foreshadowing a period of labour capacity constraints.

ICAP economist Adam Carr said the building approvals data was “quite a bit weaker” than he was expecting.

“I don’t think the RBA should, or necessarily will, be hiking next Tuesday,” Mr Carr said in a statement.

“We need to see that CPI number to ensure that there is a near-term case to hike rates.”

He said there was a chance that the upcoming CPI figures, due to be released in late October, could be soft.

“Given the weakness in the August housing/credit numbers, global uncertainties and the bank’s confusion over the consumer, then the case to tighten is much reduced.”

He noted that building approvals declined in every month bar two this year.

Australian building approvals fell 4.7 per cent to 13,049 units in August, seasonally adjusted, from an downwardly revised 13,699 units in July, the Australian Bureau of Statistics said on Wednesday.

In the year to August, building approvals were up 4.4 per cent.

Meanwhile, the total number of job vacancies in Australia in August 2010 was 181,300, in seasonally adjusted terms, the ABS said on Thursday.

This was an increase of 9.8 per cent from the previous quarterly survey, conducted in May 2010.

Nomura Australia economist Stephen Roberts said the home building approvals data was a “bit on the soft side of expectations” but the return to the job vacancies data could “hardly be stronger”.

“It was very strong in relation to capacity constraints in the labour market,” he said.

While an interest rate rise next week was a real possibility, there was a good chance the RBA would want to see inflation data before lifting the cash rate, Mr Roberts said.

“I think they may wait until November, but I recognise that there’s still a very good chance that they could go next week.”

The futures market is now pricing in a two in three chance the RBA will take the cash rate to 4.75 per cent from 4.5 per cent, when it meets on Tuesday.

Mr Roberts said a slight fall in national house prices, recorded in the latest RP Data-Rismark Hedonic Australian Home Value Index, was “great news”.

“We could not afford to have housing running strongly,” Mr Roberts said.

Australian capital city home prices fell by 1.2 per cent in the past three months, with Perth falling 4.8 per cent, Brisbane down by 2.3 per cent and Melbourne down by 1.5 per cent, the data showed.

“If we had a housing boom we’d been talking about interest rates at 10 per cent, so the fact that house prices are coming back and are likely to stay down, probably for quite some time to come, is exactly the news we need,” he said.

A subdued housing sector would allow room for business investment spending.

Westpac economists noted that building approvals weakness in August was “heavily concentrated” in private sector houses, which registered a 4.3 per cent fall in August, the third month in a row.

“Overall, the report shows activity continuing to weaken in response to interest rate rises and a wind-down in first home buyer activity,” Westpac economists said in a statement.

They said there were some “tentative signs” that housing markets were starting to find a base in August/September.