By David Llewellyn-Smith
Macroprudential tightening is coming but what kind? In the course of a year, the Reserve Bank of Australia (RBA) has swung from a viewpoint that macroprudential is “dreaded” and the “latest fad” to an endorsement of doing something about the housing bubble that doesn’t involve raising interest rates. Throughout this time there have been two lines of debate of what kind of macroprudential might be used. The first is requiring banks to list interest rate buffers within mortgage calculators:
“Other than avoiding an over-easing of monetary policy, the most promising policy response seems to be to introduce a regulatory regime that automatically requires larger interest buffers in loan affordability calculations when interest rates are low,’’ Dr Ellis [head of financial stability at the RBA] wrote on July 19, 2013.
