Joye: RBA ingores housing at its peril

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From Chris Joye today:

…The RBA would like to see the Aussie dollar well below US90¢ – in the governor’s words nearer US85¢ – to ensure the monetary policy mix between the currency and rates is appropriate for the economy’s outlook.

…In contrast to the RBA’s bewilderment at currency traders’ behaviour, it thinks the bond market reaction to Tuesday’s policy change was about right. Here the Statement on Monetary Policy pointedly highlights that “market pricing suggests no change to the cash rate is expected for about a year”.

…In the interests of not spooking traders, the RBA is clinging to its stubbornly optimistic view of Australia’s frothy housing market…Yet if house prices keep ballooning at their present pace, Australia’s residential property sector will be more expensive relative to incomes than at any previous point over the last 40 years. The bottom line is that I do not share the RBA’s confidence on housing or inflation in the period ahead.

I am not worried especially about inflation so long as the RBA looks through it. But Chris is right when he says the Bank should not be looking through house price gains. Macroprudential now!

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.