Australian Bond Exchange Weekly Update
7th March 2025
Key Points
- Australian Dwelling Approvals Rise: Private houses lift for the first time in three months.
- China Unleashes More Stimulus: Economic growth target raised to 5%, boosting market optimism.
- ECB Cuts Interest Rates: Keeps the door open for further easing.
- Germany’s Economic Shift: Chancellor-in-waiting Friedrich Merz plans massive infrastructure and defense investment.
- Global Cash Rates and Inflation: Central banks remain cautious as inflation cools but risks persist.
Global Cash Rates & Inflation
- Australia: The Reserve Bank of Australia (RBA) Cash Rate remains at 4.35% per annum, with annual inflation sitting at 3.2% in the year to December.
- United States: The Federal Reserve’s cash rate is currently between 5.25%-5.50% per annum, with annual inflation at 3.0% as of January.
- United Kingdom: The Bank of England maintains a 4.75% per annum Bank Rate to manage an inflation rate of 2.5% in the year to December.
- Europe: The European Central Bank (ECB) deposit facility rate is 2.75% per annum, with inflation at 2.4% over the same period.
- Canada: The Bank of Canada (BoC) recently adjusted rates, bringing its policy rate to 3.0% per annum, in response to ongoing inflation concerns.
Australian Dwelling Approvals: Fragile Growth in Housing Sector
Total dwelling approvals rose by 6.3% in January, driven by a surge in private unit approvals. Private house approvals increased for the first time in three months, although this was not enough to offset the late-2024 weakness in the sector. While the uptick is a positive sign, the sustainability of the growth remains uncertain, as it is heavily influenced by the volatile high-rise unit segment, particularly in New South Wales. The value of renovations increased by 1.1% month-on-month, while non-residential building approvals fell 20.7%—though the broader trend in this sector remains firm.
China’s Stimulus Drive Boosts Markets
China has set an ambitious 5% economic growth target for 2025 and raised its budget deficit goals, fueling expectations for increased fiscal stimulus. The announcement sent Chinese stocks higher, reflecting investor optimism about Beijing’s commitment to supporting economic expansion.
As policymakers look to revive growth amid global uncertainty, additional measures—including tax cuts and increased infrastructure spending—are expected to follow. This could have far-reaching effects on commodities, trade, and regional markets.
ECB Cuts Interest Rates, Signals Further Easing
The European Central Bank (ECB) lowered its deposit rate to 2.5%, marking its sixth rate cut since June. While the move was widely expected, the ECB signaled that monetary policy remains restrictive and left the door open for further easing if economic conditions warrant it.
The decision comes as Europe grapples with slowing inflation and weak growth, compounded by geopolitical uncertainties, rising military expenditures, and potential trade disputes with the United States.
Germany’s Economic Transformation: Billions in Investment Ahead
German stocks surged, and bond yields climbed after chancellor-in-waiting Friedrich Merz announced plans to unlock hundreds of billions of euros for infrastructure and defense investments. This represents a significant shift from Germany’s traditionally conservative fiscal policies, as the government looks to modernise key sectors and enhance economic resilience.
The move is expected to drive long-term growth but may also reshape European fiscal policy, given Germany’s influence within the EU.
Week Ahead
- Australian economic data: Housing, employment, and retail sales trends will be closely monitored.
- China’s stimulus rollout: Investors await further policy announcements.
- ECB and global central banks: Continued focus on inflation and monetary policy shifts.
*Data accurate as at 7.03.2025
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