Is the RBA or APRA responsible for house prices?
Yesterday we got the following from Phil Lowe as the stall speed Aussie economy endures both endogenous and exogenous shocks:
Our central forecast is for the Australian economy to expand by 2¾ per cent over 2020 and 3 per cent the following year (Graph 5). These growth rates are a little above our current estimate of medium-term growth in Australia, so some inroad into spare capacity should be made. These growth rates are also higher than the outcomes for 2018 and 2019. As I have been saying for some time, we are passing through a gentle turning point for the better.
The odds of hitting these forecasts are very low. Lowe also said this:
It certainly remains the case that a further reduction in interest rates would help with the balance sheet adjustment by households with existing debt, which should help bring forward the day that consumption strengthens. It would also have a further effect on the exchange rate, which would boost demand for our exports and therefore support jobs growth.
On the other side of the equation though, there are risks in having interest rates at very low levels. Internationally, there are increased concerns about the effect of very low interest rates on resource allocation and their effect on the confidence of some people. Lower interest rates could also encourage more borrowing by households eager to buy residential property at a time when there is already a strong upswing in housing prices in place. If that occurs, this could increase the risk of problems down the track. So there is a balance to be struck here.
In other words, the bank is not cutting now, even though it admits it needs to, because of house prices.
The question is, after years wrestling with this conundrum, why is the bank still not cooperating with APRA? The RBA works with the Council of Financial Regulators. So, if it has APRA standing by ready to control any overheating mortgage credit then why is it not cutting the cash rate to achieve a mandate it openly confesses it is missing:
It certainly remains the case that a further reduction in interest rates would help with the balance sheet adjustment by households with existing debt, which should help bring forward the day that consumption strengthens. It would also have a further effect on the exchange rate, which would boost demand for our exports and therefore support jobs growth.
It was APRA that curtailed the last housing boom allowing the RBA cut, why do we have to rerun all of the debates again?
Who is responsible here?
