As the housing debate heats up, Bloxo weighs in against macroprudential policy:
Paul Bloxham, who is the chief economist at HSBC in Australia, said the limits on bank lending being introduced in New Zealand would not work.
Mr Bloxham made his comments after Australia’s banks were this week warned against taking on risky loans in a low-interest rate environment, raising the prospect of more direct controls to prevent a house price bubble.
..He said the RBA would respond with interest rate rises if there were signs the property market was overheating, rather than impose lending restrictions. “I see that as part of the reason why I would expect that the RBA probably won’t cut interest rates any further,” Mr Bloxham said.
“At some point – probably about a year from now – the RBA might have to start lifting interest rates because of a pick-up in the housing market and concerns about financial stability issues.”
“I think they need house prices to rise and I think the RBA will be comfortable if house prices are rising nationally at even a high single digit rate. But if house prices start to rise at double digit rates, or if you see signs of exuberance in some part of the housing market, I think that would concern the RBA.”
Sigh. The RBA’s own research proves MP policy is effective:
The results establish a link between interest rates and macroprudential policy actions and subsequent fluctuations in real housing prices and real housing credit. Higher short-term interest rates tend to slow housing price appreciation and housing credit growth, although the magnitude of the effect is modest. Actions categorised as prudential measures (maximum LTV and DSTI ratios, provisioning requirements, real estate exposure limits and risk weights) are consistently jointly significant in our regressions. Decreases in the maximum LTV ratio are associated with reductions in the growth rate of housing prices. Similarly, reductions in the maximum DSTI ratio and increases in provisioning requirements are associated with reductions in the growth rate of real housing credit. We were unable to find any consistent relationship between changes in non-interest rate monetary policy measures and either housing price or credit growth, however. Taken together, our results suggest that certain types of macroprudential policies can be effective tools for stabilising housing price and credit cycles. This is good news for central banks seeking additional flexibility in their pursuit of macroeconomic and financial stability objective.
QED. If the RBA raises rates and dollar next year into the mining investment cliff then Chris Joye has every right to be very worried.
