Australians Saving The Most In Over Two Decades Again

Australians Saving The Most In Over Two Decades Again

As interest rates have steadily risen over the last year, new data shows that ordinary Australians are saving the most they ever have in two decades. Economists attribute the trend to being as a result of consumer concern over the direction of interest rates and the future trajectory of the economy.

National income accounts data which was released on Wednesday shows that growth of the Australian economy slowed down during the September, expanding by a moribund 0.2 per cent, the slowest recorded level since the end of 2008, when the financial crisis was at its greatest, and the fifth slowest recorded growth rate since 2000.

Consensus growth forecasts by a majority of economists had been 0.5 per cent, and the sluggish result is likely to compel the central bank to hold interest rates steady until well into 2011.

The GDP data and the prospect of steady interest rates resulted in a sharp fall in the value of the Australian dollar against the US dollar, with the futures markets pricing in a 3 per cent probability of the Reserve Bank of Australia cutting interest rates during its final board meeting of the year scheduled next week.

Australian households however seem to be saving more, with the savings rate the highest it has been since 1987 excluding the period of last year’s fiscal stimulus.

The Australian household savings rate touched 10.2 per cent during the September quarter, sharply higher than the 8.2 per cent recorded during the previous quarter.
Savanth Sebastian an economist with CommSec Securities was quoted in The Australian as saying that the reason behind the higher savings rate was an increased level of national income as a result of the resource boom.

“The extra dollars coming in aren’t being spent. Consumers and business are holding on to the cash until the economic recovery gains traction. The double-digit household savings ratio and weak private sector investment outside the mining sector adds weight to this argument.” Mr. Sebastian said.

Australian Prudential Regulation Authority (APRA) data released this week echoed the view that the savings rate had reached its highest level in two decades.

According to APRA household deposits placed with the big four banking groups rose by an annualized 8 per cent in October. Term deposits grew even faster, by 21 per cent over the last year according to the Reserve Bank of Australia.

The RBA figures show $422.4 billion was held in term deposits in October compared with $348bn last year.