RBA to hold interest rates for rest of 2015: CommSec's Savanth Sebastian

| Sep 14,2015

| 5 min read

GUEST OBSERVER

Last week we noted that petrol prices were primed to lift from near six-month lows. And in the past week pump price have jumped by 2.4 cents a litre. The volatility in global oil prices, a weaker Australian dollar and the shift in the discounting cycle have all had the undesirable impact of lifting pump prices.

It’s been a great couple of months for motorists, but looking forward it is likely pump prices will be more volatile. The volatility in global oil prices has been nothing short of remarkable. After essentially sliding for ten consecutive weeks to six-month lows, the Singapore unleaded prices has lifted by over US$2 a barrel in the past fortnight.

However the gains have been even more substantial in Aussie dollar terms - given the slide in the currency. In fact in the past fortnight the Singapore unleaded price has lifted by over AUD$6 a barrel despite modest falls last week. If the price gains are sustained it will filter through to pump prices in coming weeks. Already the terminal gate price has risen by 2.5 cents a litre over the past week.

Looking forward, while the magnitude of the lift in petrol prices is uncertain, what is clear is that the volatility is here to stay. Improvements in the global economic outlook and the possibility of further stimulus from the world’s number one energy consumer, China, could add to further the upward momentum for oil prices. Although we would expect that concerns about an ongoing supply glut and worries about global oil demand will continue to dominate sentiment and trade.

Click to enlarge

Consumers continue to be savvy about card use. The average credit balance has gone backwards over the past year. And given that the inflation rate is near 2 per cent, credit card debt is recording a decent fall in real terms. Cardholders are frequently paying off credit card debt by the due date and using cards to maximise loyalty points. In fact around 60 per cent of CBA credit-card holders pay off the card in full in the 55 day interest free period.

What do the figures show?

Petrol prices

According to the Australian Institute of Petroleum, the national average Australian price of petrol rose by 2.4 cents per litre to 132.2 cents per litre in the week to September 13. The metropolitan petrol price rose by 3.3 cents to 131.6 cents per litre and the regional price rose by 0.6 cents to 133.6 cents per litre.

The national average Australian price of diesel petrol fell by 0.4 cents to 129.6 cents per litre in the week to September 13. Last week the metropolitan price fell by 0.4 cents to 127.3 c/l, while the regional average price fell by 0.4 cents to 131.5 c/l.

Average unleaded petrol prices across states and territories over the past week were: Sydney (up 1.7 cents to 132.4 c/l), Melbourne (up 13.6 cents to 135.0 c/l), Brisbane (down 1.8 cents to 130.8 c/l), Adelaide (down 8.3 cents to 123.2 c/l), Perth (up 1.5 cents to 128.5 c/l), Darwin (down by 1.1 cents to 130.9 c/l), Canberra (down 0.9 cents to 132.8 c/l) and Hobart (down by 1.6 cent to 137.5 c/l).

Today, the national average wholesale (terminal gate) unleaded petrol price stands at 120.8 cents a litre, up around 2.5 cents a litre on a week ago. The terminal gate diesel price stands at 117.2 cents a litre, up around 1.3 cents over the week.

Last week the key Singapore gasoline price fell by US$2.25 or 3.4 per cent to US$64.75 a barrel. Singapore gasoline previously hit a near 6-year low (lowest since March 2009) of US$52.20 a barrel on January 13. In Australian dollar terms the Singapore gasoline price fell by $4.42 a barrel or 4.6 per cent last week to $91.67 a barrel or 57.7 cents a litre.

Credit card lending:

Figures released from the Reserve Bank show that the average credit card balance fell by $65.20 (2%) to $3,132.70 in July. Compared with a year ago, the average credit card balance was down 2.1%. In smoothed terms (12 month average) the average balance was down by 0.4%.

Of credit cards attracting interest charges, the average outstanding balance fell by $60.20 in July. The average balance accruing interest is down by 6.9% on a year ago. In smoothed terms (12 month average) the average balance was down by 4.5%.

The average credit card limit rose by $8.70 to $9,056.30 in July. The average credit card limit rose by 0.3% in the year to July. Usage of credit card limits has fallen to a near 14-year low of 34.6% in July.

The average repayment per credit card rose from $1,679.90 in June to $1,690 in July. On average, there were 11.8 transactions made per each credit card account in July, up from 11.4 a year ago. The average value of purchases was $135.14 in July.

What is the importance of the economic data?

Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

What are the implications for interest rates and investors?

The Reserve Bank can cut rates further if it believes the economy needs a little more help. However we believe that the Reserve Bank would be a reluctant rate cutter from this point on. CommSec expects interest rates to stay on hold over the rest of 2015. The Reserve Bank Governor’s testimony on Friday to the House of Representatives Economics Committee may provide more detail when it comes to the outlook for monetary policy.

Savanth Sebastian is an economist for CommSec.

Savanth Sebastian

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Interest Rates

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<h2> RBA to hold interest rates for rest of 2015: CommSec's Savanth Sebastian</h2>

<html><body><div class="page" title="Page 1">
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<div class="column"><span style="line-height: 1.3em;">GUEST OBSERVER</span></div>
<div class="column"> </div>
<div class="column"><span style="line-height: 1.3em;">Last week we noted that petrol prices were primed to lift from near six-month lows. And in the past week pump price have jumped by 2.4 cents a litre. The volatility in global oil prices, a weaker Australian dollar and the shift in the discounting cycle have all had the undesirable impact of lifting pump prices.</span></div>
<div class="column"><span style="line-height: 1.3em;"> </span></div>
<div class="column"><span style="line-height: 1.3em;">It’s been a great couple of months for motorists, but looking forward it is likely pump prices will be more volatile. The volatility in global oil prices has been nothing short of remarkable. After essentially sliding for ten consecutive weeks to six-month lows, the Singapore unleaded prices has lifted by over US$2 a barrel in the past fortnight. </span></div>
<div class="column"><span style="line-height: 1.3em;"> </span></div>
<div class="column"><span style="line-height: 1.3em;">However the gains have been even more substantial in Aussie dollar terms - given the slide in the currency. In fact in the past fortnight the Singapore unleaded price has lifted by over AUD$6 a barrel despite modest falls last week. If the price gains are sustained it will filter through to pump prices in coming weeks. Already the terminal gate price has risen by 2.5 cents a litre over the past week.</span></div>
<div class="column"><span style="line-height: 1.3em;"> </span></div>
<div class="column"><span style="line-height: 1.3em;">Looking forward, while the magnitude of the lift in petrol prices is uncertain, what is clear is that the volatility is here to stay. Improvements in the global economic outlook and the possibility of further stimulus from the world’s number one energy consumer, China, could add to further the upward momentum for oil prices. Although we would expect that concerns about an ongoing supply glut and worries about global oil demand will continue to dominate sentiment and trade. </span></div>
<div class="column"><span style="line-height: 1.3em;"> </span></div>
<div class="column"><a href="/images/2015/09/14/Screen%20Shot%202015-09-14%20at%202.07.28%20PM.png" target="_blank"><span style="line-height: 1.3em;">Click to enlarge</span></a></div>
<div class="column"><span style="line-height: 1.3em;"><img width="580" height="435"  src="/images/2015/09/14/Screen%20Shot%202015-09-14%20at%202.07.28%20PM.png" alt="RBA to hold interest rates for rest of 2015: CommSec's Savanth Sebastian" width="777" height="242"></span></div>
<div class="column"> 
<p><span>Consumers continue to be savvy about card use. The average credit balance has gone backwards over the past year. And given that the inflation rate is near 2 per cent, credit card debt is recording a decent fall in real terms. Cardholders are frequently paying off credit card debt by the due date and using cards to maximise loyalty points. In fact around 60 per cent of CBA credit-card holders pay off the card in full in the 55 day interest free period.</span></p>
<p><span>What do the figures show?</span></p>
<p><span>Petrol prices</span></p>
<p><span>According to the Australian Institute of Petroleum, the national average Australian price of petrol rose by 2.4 cents per litre to 132.2 cents per litre in the week to September 13. The metropolitan petrol price rose by 3.3 cents to 131.6 cents per litre and the regional price rose by 0.6 cents to 133.6 cents per litre.</span></p>
<p><span>The national average Australian price of diesel petrol fell by 0.4 cents to 129.6 cents per litre in the week to September 13. Last week the metropolitan price fell by 0.4 cents to 127.3 c/l, while the regional average price fell by 0.4 cents to 131.5 c/l.</span><span style="line-height: 1.3em;"> </span></p>
<p><span>Average unleaded petrol prices across states and territories over the past week were: Sydney (up 1.7 cents to 132.4 c/l), Melbourne (up 13.6 cents to 135.0 c/l), Brisbane (down 1.8 cents to 130.8 c/l), Adelaide (down 8.3 cents to 123.2 c/l), Perth (up 1.5 cents to 128.5 c/l), Darwin (down by 1.1 cents to 130.9 c/l), Canberra (down 0.9 cents to 132.8 c/l) and Hobart (down by 1.6 cent to 137.5 c/l).</span><span style="line-height: 1.3em;"> </span></p>
<p><span>Today, the national average wholesale (terminal gate) unleaded petrol price stands at 120.8 cents a litre, up around 2.5 cents a litre on a week ago. The terminal gate diesel price stands at 117.2 cents a litre, up around 1.3 cents over the week.</span></p>
<p><span>Last week the key Singapore gasoline price fell by US$2.25 or 3.4 per cent to US$64.75 a barrel. Singapore gasoline previously hit a near 6-year low (lowest since March 2009) of US$52.20 a barrel on January 13. In Australian dollar terms the Singapore gasoline price fell by $4.42 a barrel or 4.6 per cent last week to $91.67 a barrel or 57.7 cents a litre.</span></p>
<p><span>Credit card lending:</span></p>
<p><span>Figures released from the Reserve Bank show that the average credit card balance fell by $65.20 (2%) to $3,132.70 in July. Compared with a year ago, the average credit card balance was down 2.1%. In smoothed terms (12 month average) the average balance was down by 0.4%.</span></p>
<p><span>Of credit cards attracting interest charges, the average outstanding balance fell by $60.20 in July. The average balance accruing interest is down by 6.9% on a year ago. In smoothed terms (12 month average) the average balance was down by 4.5%.</span></p>
<p><span>The average credit card limit rose by $8.70 to $9,056.30 in July. The average credit card limit rose by 0.3% in the year to July. Usage of credit card limits has fallen to a near 14-year low of 34.6% in July.</span></p>
<p><span>The average repayment per credit card rose from $1,679.90 in June to $1,690 in July. On average, there were 11.8 transactions made per each credit card account in July, up from 11.4 a year ago. The average value of purchases was $135.14 in July.</span></p>
<p><span>What is the importance of the economic data?</span></p>
<p><span>Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.</span></p>
<p><span>The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.</span></p>
<p><span>What are the implications for interest rates and investors?</span><span style="line-height: 1.3em;"> </span></p>
<p><span>The Reserve Bank can cut rates further if it believes the economy needs a little more help. However we believe that the Reserve Bank would be a reluctant rate cutter from this point on. CommSec expects interest rates to stay on hold over the rest of 2015. The Reserve Bank Governor’s testimony on Friday to the House of Representatives Economics Committee may provide more detail when it comes to the outlook for monetary policy. </span></p>
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<div class="column"><span style="line-height: 1.3em;"><em>Savanth Sebastian is an economist for <a href="https://www.commsec.com.au" target="_blank">CommSec</a>.</em></span></div>
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This article is republished from
<a href="https://www.urban.com.au">Urban.com.au</a> under a Creative Commons
license. Read the <a href="https://staging.urban.com.au/expert-insights/finance/46124-rba-to-hold-interest-rates-for-rest-of-2015-commsec-s-savanth-sebastian">original article</a>.</p>