By Shane Wright
December 3, 2019 — 2.30pm
The Reserve Bank of Australia (RBA) has used its last meeting of the year to hold official interest rates steady as it waits to see if the economy closes out 2019 on a high note.
Christmas is an annual festival commemorating the birth of Jesus Christ, observed primarily on December 25 as a religious and cultural celebration among billions of people around the world. A feast central to the Christian liturgical year, it is preceded by the season of Advent or the Nativity Fast and initiates the season of Christmastide, which historically in the West lasts twelve days and culminates on Twelfth Night; in some traditions, Christmastide includes an octave. Christmas Day is a public holiday in many of the world’s nations, is celebrated religiously by a majority of Christians, as well as culturally by many non-Christians, and forms an integral part of the holiday season centered around it.
The traditional Christmas narrative, the Nativity of Jesus, delineated in the New Testament says that Jesus was born in Bethlehem, in accordance with messianic prophecies. When Joseph and Mary arrived in the city, the inn had no room and so they were offered a stable where the Christ Child was soon born, with angels proclaiming this news to shepherds who then further disseminated the information.Although the month and date of Jesus’ birth are unknown, the church in the early fourth century fixed the date as December 25. This corresponds to the date of the solstice on the Roman calendar. Most Christians celebrate on December 25 in the Gregorian calendar, which has been adopted almost universally in the civil calendars used in countries throughout the world. However, some Eastern Christian Churches celebrate Christmas on December 25 of the older Julian calendar, which currently corresponds to a January date in the Gregorian calendar. For Christians, believing that God came into the world in the form of man to atone for the sins of humanity, rather than knowing Jesus’ exact birth date, is considered to be the primary purpose in celebrating Christmas.The celebratory customs associated in various countries with Christmas have a mix of pre-Christian, Christian, and secular themes and origins. Popular modern customs of the holiday include gift giving, completing an Advent calendar or Advent wreath, Christmas music and caroling, lighting a Christingle, viewing a Nativity play, an exchange of Christmas cards, church services, a special meal, pulling Christmas crackers and the display of various Christmas decorations, including Christmas trees, Christmas lights, nativity scenes, garlands, wreaths, mistletoe, and holly. In addition, several closely related and often interchangeable figures, known as Santa Claus, Father Christmas, Saint Nicholas, and Christkind, are associated with bringing gifts to children during the Christmas season and have their own body of traditions and lore. Because gift-giving and many other aspects of the Christmas festival involve heightened economic activity, the holiday has become a significant event and a key sales period for retailers and businesses. The economic impact of Christmas has grown steadily over the past few centuries in many regions of the world.
RBA holds rates as it waits on Christmas spending
Consumption, defined as spending for acquisition of utility, is a major concept in economics and is also studied in many other social sciences. It is seen in contrast to investing, which is spending for acquisition of future income.Different schools of economists define consumption differently. According to mainstream economists, only the final purchase of newly produced goods and services by individuals for immediate use constitutes consumption, while other types of expenditure — in particular, fixed investment, intermediate consumption, and government spending — are placed in separate categories (see Consumer choice). Other economists define consumption much more broadly, as the aggregate of all economic activity that does not entail the design, production and marketing of goods and services (e.g. the selection, adoption, use, disposal and recycling of goods and services).Economists are particularly interested in the relationship between consumption and income, as modeled with the consumption function.
Following its meeting on Tuesday, the bank left the official cash rate at 0.75 per cent. Financial markets and economists had been expecting the RBA to leave rates steady, instead believing it would make a cut early next year.
The RBA has halved the cash rate since June as it seeks to drive down the unemployment rate and lift wages.
Its decision followed the release by the Australian Bureau of Statistics of key components of Wednesday’s national accounts that suggest the economy grew 0.6 per cent through the September quarter. That would take annual growth up to almost 1.8 per cent.
RBA governor Philip Lowe said the economy had reached a “gentle turning point”, maintaining the bank’s belief that growth would pick up to about 3 per cent by 2021. The biggest risk remained spending by households.
“The main domestic uncertainty continues to be the outlook for consumption, with the sustained period of only modest increases in household disposable income continuing to weigh on consumer spending,” he said. “Other sources of uncertainty include the effects of the drought and the evolution of the housing construction cycle.”
This week, figures from CoreLogic showed the biggest lift in dwelling prices across the country since 2003. House values in Sydney grew 3.1 per cent in November, the biggest jump in the city since 1988.
Dr Lowe said those higher prices should deliver an economic benefit.
“[Rate cuts have] boosted asset prices, which in time should lead to increased spending, including on residential construction,” he said. “Lower mortgage rates are also boosting aggregate household disposable income, which, in time, will boost household spending.”
While talking up the economy’s growth prospects, Dr Lowe made clear the RBA expected to keep rates at a low level for an extended period of time. He did not rule out the RBA board considering future rate reductions.
“The board agreed that due to both global and domestic factors, it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target,” he said. “The board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”
CoreLogic’s head of research, Tim Lawless, said the decision was not unexpected.
“The hold decision was generally expected, especially considering the unexpectedly strong housing market rebound that has been evident since the first rate cut in June,” he said.
“National home values have recovered almost 5 per cent of the correction since the market found a floor in June, with the monthly rise in CoreLogic’s national home value index the highest result since 2003.”
It looks like the cash rate will be heading further south with the first 25 basis points cut possibly in February.
Finsure’s John Kolenda
Finance brokerage firm Finsure said the RBA was waiting to see if shoppers opened their wallets through Christmas.
The firm’s managing director, John Kolenda, said future rate cuts were on the RBA’s agenda.
“It looks like the cash rate will be heading further south with the first 25 basis points cut possibly in February,” he said. “Although it is not the RBA’s desired position, unless they see an improvement in the economy which supports job growth and consumer spending, then it is inevitable rates will come down.”
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.