Deloitte: RBA sitting on housing “powder keg”

Via AFR:

Interest rates won’t rise until 2018 and even then increases will be slow and moderate because the Reserve Bank of Australia fears igniting the housing “powder keg”, Deloitte Access Economics says.

The firm’s latest business outlook acknowledges global momentum to lift rates but insists it will be some time yet before the RBA is comfortable enough to act here.

The report says the RBA central bank is particularly worried about the potentially destabilising effect of lifting mortgage costs, which would add to already high rates of household debt.

“Although we see rates rising, you shouldn’t expect a sprint. We’re sitting on a housing powder keg.”

Deloitte says Australia’s economic outlook is solid, with some growth in wages and inflation anticipated in 2018. But like interest rates, change will be modest and slow.

“Interest rates are now a massively more potent weapon for slowing the Australian economy than they’ve ever been before,” the Deloitte report says.

“The Reserve Bank knows that, and so it will be taking baby steps as it increases the cost of capital once again. In fact, families are three times as exposed to a shift in interest rates as they were at the turn of the century.”

I remain of the view that by the time the RBA can afford to hike rates it will be too late to do so. Next move remains down.

Houses and Holes

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.

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