Australian Shift to Thrift May Give Stevens Cause to Pause: Chart of Day

Higher savings in Australia may bring consumers the added return of a central bank more willing to delay interest-rate increases, said economist Stephen Roberts at Nomura Australia Ltd.

The CHART OF THE DAY shows how the savings rate tracked changes in borrowing costs before and after the financial crisis. Yesterday’s government report on gross domestic product showed savings as a share of disposable income climbed to 10.2 percent in the third quarter from 8.9 percent three months earlier.

“This suggests the household sector has been a lot more cautious than we had previously believed and may give the RBA more of a window to pause rates,” Roberts said. The central bank “will still want to be pre-emptive, but it gives them a chance to stagger the next rate hike or two,” he said.

RBA Governor Glenn Stevens boosted the overnight cash rate target a month ago by a quarter percentage point as mining investment, job growth and overseas demand propel the economy. He has lifted the benchmark lending rate seven times since October 2009, to 4.75 percent, in the steepest round of increases by a member of the Group of 20.

Stevens highlighted in a speech this week in Melbourne that the savings rate has climbed from minus 1 percent five years ago and said “more cautious behavior by households” isn’t “unwelcome.”

Australia’s savings rate has averaged about 3 percent in the past decade, and its renewed increase at a time of economic expansion means less cash adding to price pressures. The RBA governor is trying to prevent inflation from accelerating during the country’s biggest mining-investment boom in more than a century. “With the stimulus from the terms of trade and the likely investment build-up, the economy can cope with more saving by households for a time,” he said in his speech.

To contact the reporters for this story: Michael Heath in Sydney at mheath1@bloomberg.net; Daniel Petrie in Sydney at dpetrie5@bloomberg.net

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net

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