After three years of inertia, a new intellectual paradigm has emerged from within the Reserve Bank of Australia. It has gradually taken form in speech after speech from the governor, Phil Lowe, and his acolytes. And its increasingly lucid logic rubbishes the concerns of critics worried about the consequences of extremely low rates, and our forecast for a sharp rise in national house prices, which is playing out right now.
Yep, the mandate, discovery of secular stagnation, macroprudential controls in hand, ensure it. But:
Treasury has advised Joshua Frydenberg that “given Australia’s financial system is dominated by bank lending to households, it is likely the [RBA] would first consider options aimed at lowering bank funding costs or supporting mortgage funding directly”. “This would involve either buying commercial bank bills or residential mortgage-backed securities,” Treasury continued. “The latter may be particularly attractive as the RBA already holds these assets as collateral as part of its existing operations.”