Bond purchases to continue
No sooner were commentators excitedly announcing the prospect of interest rate hikes next year, than New South Wales, Victoria, and South Australia have all been plunged into lockdowns.
GDP will probably now shrink significantly in the third quarter - perhaps by up to 1 per cent - while what happens in the fourth quarter is anybody's guess.
Reserve Bank bond purchases may not be tapered in September as previously planned, and this will likely be a 'live' discussion in next month's Meeting.
Indeed, some experienced commentators even expect the pace of buying to be dialled back up again, back up to $6 billion per month (Westpac's Bill Evans has argued that such a move would send a strong message to markets).
Data king James Foster articulates these potential trajectories well in the below chart:
Source: James Foster
In any event, there won't be any hikes in the cash rate any time soon.
The Aussie 3-year bond yield has eased all the way back down to around 0.25 per cent.
The good news is that with the huge stimulus bolstering household balance sheets, mortgage stress had fallen to near record lows ahead of the recent lockdowns.
As refinancing continues, the average mortgage rate on outstanding loans has continued to drop sharply.
Source: CoreLogic
Source: Roy Morgan
With movements now restricted again we might expect to see a return of loan deferrals, with regulators to again offer temporary relief in this regard.
The Reserve Bank noted in its July Minutes how rental markets have tightened substantially, with unit rents in Melbourne being the main exception (although the pace of decline had eased there too).
Housing prices increased by more than 10 per cent in the first half of the year, though seems increasingly likely that the second half of the year will likely see a slower rate of growth.
