MNI INSIGHT: RBA Unfazed By Retail Sales, Sees Rate Cut Lag

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia is waiting to see whether rate

cuts in June and July feed through into household spending by the last quarter,

and officials are not overly worried by sluggish retail sales, MNI understands.

     Financial markets continue to price in at least one more rate cut this

year, with strong expectations of another move in October, but the RBA is hoping

that the effect of the record low 1% cash rate to show up in household budgets

by the end of the year.

     Retail sales fell 0.1% on month in July, but officials do not view the

retail sales data as fully reflective of consumption patterns, believing the

sector is struggling with long-term structural decline.

     At the same time, a housing market bounce hasn't convinced officials rate

cuts are loosening the economy's purse strings either.

     Instead, the impetus in property came after the Australian Prudential

Regulatory Authority (APRA) scrapped a 2014 rule which required lenders to

assess borrowers' ability to service home loans at 7% interest, even though

mortgage rates are currently at 3% or below.

     The most recent RBA Statement on Monetary Policy reaffirmed the RBA's

willingness to cut further if necessary. The SOMP also confirmed the Bank had

been reviewing "unconventional" policy options such as QE and zero rates, should

these be required.

     The latest private sector research shows that on a national basis house

prices rose 0.8% in September, and double that in Sydney. Official housing

finance data for July - the latest available -- showed a 5.1% increase in

lending.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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