From today's Board Minutes (apologies Cliff):
"Members also took account of the fact that a Board meeting was not typically scheduled in January, given that local markets tended to be relatively thin over the summer break and statistical and survey data, as well as liaison information, were less timely. Overall, members judged that the two-month break between meetings was one consideration in favour of a substantial reduction in interest rates at this meeting."
But gloom isn't taking a holiday...
Australia's export outlook has dramatically worsened with the official forecaster now predicting only a fraction of the growth it expected 3 months ago. The news came as the Treasurer lifted the supply of government bonds in order to quell concern about the working of interest rate markets and amid talk of a "borrowing strike" by consumers.
The Bureau of Agricultural and Resource Economics reported that resource exports, which it had expected to climb 53 per cent this financial year should now climb by a lower 37 per cent. It warned of "downside risks" to the forecast.
The Bureau now expects iron ore export earnings to grow by 52 per cent, down from a previously forecast 91 per cent, a drop of $8 billion.
Income from exporting liquefied natural gas should now climb by 15 per cent instead of 50 per cent. Exports of copper and alumina, previously expected to grow, are now likely to slide.
"The main adverse effect of the global financial crisis has been the sharply lower world prices for minerals and energy commodities,” said Executive Director Phillip Glyde.
The Bureau expects China's economy to continue to grow strongly next year at 8 per cent, down from 10 per cent. But it says if that does not happen it sees a "considerable downside risk".
While farm prices were not as sensitive to the global crisis as resource prices, they are likely to be hit instead by improved crop yields. The Bureau has wound back its forecast for farm earnings growth from 9 per cent to 7 per cent.
Treasurer Wayne Swan late yesterday directed the Treasury's Office of Financial Management to issue a further $5 billion of government bonds and signaled further releases "as necessary over coming months to maintain the liquidity and efficiency of the market".
Australian government bonds are the benchmark used to set interest rates and have been in short supply. In May the government injected $5 billion into the market, taking the total to $55 billion. The new issue will take the total to $60 billion.
All of this borrowing is offset by government investment elsewhere, much of it lending to state and territory governments.
Australian consumers cut borrowing in October, taking out 2.1 per cent less in personal loans. By contrast, new borrowing for housing climbed 2.4 per cent. Both have fallen sharply over the past year.
"Borrowers are on an extended strike," said ComSec economist Savanth Sebastian. "New lending commitments have fallen in seven out of the last eight months are are down more than 20 per cent in the last year.
New business loans fell 3 per cent in October, to be down 24 per cent over the year. But offsetting this was was an increase in the use of previously granted lines of credit. Usage of commercial revolving credit limits hit 62.3 per cent – a 12 year high.