Is corrupt APRA preparing the next round of macroprudential?

It had better be. The last time Australia found itself coming out of a housing correction in 2011, MB warned that APRA should tighten macroprudential policy. Instead it waited five years and the rest is bubble history.

In part APRA was slowed by the Lunatic RBA which very unwisely campaigned against macroprudential for years. This time what can we expect? After all, it is still saying that it does not want household debt to rise further:

Members also judged that the extent of spare capacity in the economy, and the likely pace at which it would be absorbed, meant that a decline in interest rates was unlikely to encourage an unwelcome material pick-up in borrowing by households that would add to medium-term risks in the economy. Members recognised the uneven effect of lower interest rates on different households.

But it also said almost exactly these same words in 2010 before unleashing household debt Hell.  That was Glenn Stevens. Would Phil Lowe also flip over so appallingly? Hopefully not but you never can tell. He doesn’t seem to mind being pimped to Josh Recessionberg who has a big, fat housing bubble in mind as soon as possible.

APRA head Wayne Byers also has a lot on his plate. Apart from fighting for professional life, he has been unwinding previous APRA macroprudential tightening at astonishing speed.

So, the notion that regulators are ready to pull macroprudential levers again today is laughable. Let’s hope, then, that Warren Hogan is wrong, at The Australian:

UTS economist Warren Hogan said he was worried policy settings were “reigniting the housing bubble, while the government is sending a signal to (the) broader community saying game on, re-leverage, it’s a winner”.

“The RBA’s worst nightmare is we’re in the middle of 2020 with inflation of 1.5 per cent, credit growth of 10 per cent and house prices rising 10 per cent,” Professor Hogan, a former chief economist at ANZ, said.

…“A re-elected Morrison government has put a lot more con­fidence into the market,” he added, pointing to a bounce in auction clearance rates in Melbourne and Sydney.

“This suggests that the government has put faith in economic ­activity lifting from a renewed round of credit growth, which will support house prices and household consumption via the wealth effect; but that is simply kicking the can down the road,” said Gareth Aird, a senior economist at Commonwealth Bank.

…“It’s surprising and indeed somewhat concerning to see a federal minister encouraging people so explicitly to purchase a property,” Mr Aird said.

Indeed it is. But that’s what the Property Council wants and it pulls ScoMo’s levers.

It does not need to be a nightmare for the RBA at all. So long as APRA is preparing its next round of macroprudential tools and tightening. More rate cuts would mean no new surge in house prices, some support for spending and, most importantly, a much lower currency to lift growth and the Budget.

APRA still has to roll out comprehensive credit reporting and mooted 6 x debt-to-income borrowing caps so that is some encrouagement, via UBS:

But are they ready to go further if necessary? And will the Council of Financial Regulators resist the Government at all? A prudent regulator would be preparing and publishing its thoughts today.

History is not encouraging.

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 fouding 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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