RBA Governor Stevens released his monthly statement after this morning’s RBA Board meeting and while rates stayed at 2.5% and the wording around a “period of stability” for rates remained, there was a material change in the outlook for China, Australia’s biggest trading partner.
Last month Governor Stevens said, “China’s growth remains generally in line with policymakers’ objectives.”
But this month they added that was a near term risk saying: “China’s growth remains generally in line with policymakers’ objectives, with weakening property markets a challenge in the near term.”
Recently there have been riots in China after developers cut the price of apartments by 25% in a five-day period to clear stock. Westpac and the BREE reported a sharp decline in the price of apartments across the vast majority of the 70 Chinese cities surveyed.
It all adds up to increased risk in the Chinese economy and in Chinese banking. This was a point picked up on by Gabriel Stein, professor at the University of London and economist at consulting firm Oxford Economics, who the SMH reports told an audience in Sydney today:
We don’t know when there will be a China banking crisis and how it will play out but it is almost certain there will be one…We do think the financial risks are high. Bad loans are understated.
The RBA hasn’t been quite as brutal, but they are obviously worried if their concerns have made it into the Governor’s statement.
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