GDP

Expectations that the RBA may now pause are increasing and comments yesterday by deputy governor of the RBA, Ric Battellino, that monetary policy is now "back in the normal range" has added fuel to this view.

The pace of growth slowed a little in the September quarter. GDP figures released yesterday indicated that the economy grew by 0.2% compared to the 0.6% in the previous quarter. Expectations were for 0.4%.

Annually the economy expanded 0.5% which is a little slower than the 0.7% that economists had tipped.

RBA Minutes

A quick look at the minutes suggests to me that they were pretty firm in the belief that the last three rate hikes were necessary to get them to a position where they could more comfortably asses their next move. I still believe there is a good chance they will pause briefly now but concede they may lift the rate to 4.25% before pausing. I've included a link to the statement and have pasted their final paragraph below.

RBA Minutes from Dec 1 2009

Concluding paragraph:

Members saw the arguments as finely balanced, but concluded that the stance of monetary policy would best reflect the circumstances facing the economy over the period ahead if there were an increase in the cash rate of 25 basis points at this meeting. Members saw this adjustment, together with those in the preceding two meetings, as materially shifting the stance of policy to a less accommodative setting and, therefore, as increasing the flexibility available to the Board at future meetings.

Lending

Total lending commitments fell by 9.7% in October to an 8-month low. It was the largest monthly fall in % terms since March 2008.

This data came at the start of the rate hike process so the worry is that these figures may indicate the slight recovery we have been enjoying is more subdued than suspected. We're likely to see a further drop in leases for instance in January as the 50% government asset purchase bonus runs out and federal assistance to first home buyers ends.

NAB Monthly Business Confidence

The NAB monthly business confidence index was released yesterday and continues to show strength returning to pre GFC levels. As I've said before, however, I believe the index is influenced by the relief being felt that we have not fallen off a cliff.

Job Ads

ANZ Job ads jumped a strong 5.2% in Nov after a fall in Oct. Employment numbers are due to be released on Thursday.

Job ads are still 34.2% lower than where they were last year but have climbed from their trough in July by 12.3%. They are showing a clear trend in the right direction. What you need to be mindful of, with this indicator and others, is that the strength reflects recovery from extreme reactions to the global crisis. Movement in the right direction has a powerful effect on mood and confidence which hopefully will ne enough to continue the trend next year.

Pause?

Now that the RBA has it's possible tightenings out of the way for the year, commentators will be keenly viewing economic indicators to see if a pause is on the way or if continued rate hikes see us moving to the previous cycle low of 4.25%. ANZ job ads are out today which are likely to show good growth. Car sales were released last week and their strong showing indicates businesses are taking up the 50% tax bonus with gusto. What remains to be seen will be how the car sector and housing sectors hold up in the absence of government assistance come the new year. Instability in these areas will flow through to jobs. For that reason I am still leaning towards believing the RBA will pause in Feb to have a look around but acknowledge there's a good chance they'll lift to 4.25% before having a rest.

Retail Spending

Retail Sales rose a moderate 0.3% in October. At this stage retail spending is holding up in the face of rising rates and the end of government handouts. It's certainly not out of control though which will assist the RBA to consider a pause. The Xmas period however will be crucial, especially seeing as we've just had another hike.

Westpac

Westpac have set a cat amongst the pigeons and lifted their mortgage rates by 45 points. They're in effect doing the RBA's job for them. If the other banks follow the RBA will have greater justification to pause now for a few months, let the dust settle and have a good look at the state of the economy.

Savings & Loans CU (S&L) and Australian Central CU (ACCU) Merger Approved.

As of today S&L and ACCU will become the one ADI. Until further notice deposits will be taken by "Savings & Loans Credit Union - a division of Australian Central Credit Union Ltd". Any deposits you may have maturing with ACCU that roll will be rolled into the above entity.

The deposit guarantee (Financial Claims Scheme) will cover up to $1m with the new entity.

Savings & Loans will conduct a voluntary total transfer of its business to Australian Central pursuant to the Financial Sector (Business Transfer and Group Restructure) Act 1999. From that time, Australian Central will become the successor in law of Savings & Loans and all of the assets and liabilities of Savings & Loans will become assets and liabilities of Australian Central, and all of the duties, obligations, immunities, rights and privileges applying to Savings & Loans will apply to Australian Central.

The new entity will have total assets of over $7 Billion.

RBA Meeting
The RBA board will meet today to discuss monetary policy and announce their decision at 2.30pm. The market is still assuming they will go ahead with a 25 point rise today but some economists have voiced doubts. Dubai isn't looking as bad as thought so I will not be surprised if they go ahead and lift by 25 points before pausing to assess the impact.