Via the ABC:
Reserve Bank governor Philip Lowe has revealed the central dilemma the Reserve Bank confronts — it would like lower interest rates to boost the economy, but it cannot cut rates because it would add further fuel to the hot Sydney and Melbourne property markets.
Dr Lowe delivered the reality check at the Australia Canada Economic Leadership Forum, where he said low interest rates made it attractive for borrowers in both countries to invest in real estate, making further rate cuts an undesirable option.
“We are trying to balance multiple objectives at the moment,” he said in response to questions after the speech.
“We’d like the economy to grow a bit more quickly and we’d like the unemployment rate to come down a bit more quickly than is currently forecast.
“But if we were to try and achieve that through monetary policy it would encourage people to borrow more money and it probably would put more upward pressure on housing prices and, at the moment, I don’t think either of those two things are really in the national interest.”
For the moment, it looks like the Reserve Bank feels content — or locked in — to leaving official interest rates on hold at a record low 1.5 per cent.
However, Dr Lowe expressed optimism that this level of rates was low enough to spark business investment and stronger economic growth, and therefore there would be no need to lower rates further.
“I think there are signs that things are improving in the economy — we’ve seen it in a whole range of business indicators in the last couple of months,” he said.
“So the hope is that the current setting of monetary policy will generate stronger growth and we can avoid a further upward pressure on housing prices.”
OK, so in describing his problem, Dr Lowe may be adding a little marginal pressure for others to do something about it. But why not canvass the solutions? Without that, all Dr Lowe is doing is pushing up the currency and ensuring that sooner or later he will have to eat his words.
Where is APRA? Why isn’t it canvassing the targeted macroprudential approach of the RBNZ for Sydney and Melbourne only?
If it’s not doing so then why doesn’t the RBA pressure it to do so in its speeches?
Ditto for supply side reform, CGT cuts, negative gearing reform, policing foreign buyers better, immigration levels. I could go.
For God’s sake, Phil, throw this choking bureaucratic caution out and stir the reform pot!
