RBA governor won’t raise interest rates to bring house prices down
Australia’s national currency rate will be put on hold until at least 2024, with the Governor of the Reserve Bank of Australia (RBA) recommending that other avenues be considered to meet soaring house prices.
At a charity event for the Anika Foundation, RBA Governor Dr. Philip Lowe on the impact of the Delta outbreak on Australia’s economy and monetary policy. While Dr. Lowe acknowledged that Australia’s economy is currently in shock and Delta is likely to delay the country’s economic recovery if the shock is temporary.
Against this background, the RBA intends to keep the record-low cash exchange rate on hold for the time being, in addition to its other monetary policy measures. According to Dr. Lowe, the RBA board will not seriously consider increasing the cash rate until “actual inflation is sustained within the 2-3 percent target range”.
“It won’t be enough for inflation to creep above the 2 percent line by just a quarter or two. We aim for inflation in the middle of the target range and are reasonably confident that inflation will not fall below the 2-3 percent mark again. In our estimation, this condition for an increase in the cash exchange rate will not be met before 2024. ”
Dr. Lowe added that he expects it will take some time for wage growth to rise enough to meet the inflation target and that he believes it is “difficult to understand” why the markets are raising interest rates in 2022 and 2023 price in.
In terms of property prices, Dr. Lowe said raising the cash rate to cool the property market is “not on our agenda”. While higher interest rates could translate into lower property prices, they would also mean fewer jobs and lower wage growth, which DR Lowe considered “a bad compromise” “under the current circumstances”.
Dr. Lowe added that the RBA and the Financial Regulator Council “are discussing possible regulatory action if lending standards deteriorate or lending growth accelerates” to keep household borrowing sustainable.
Dr. However, Lowe suggested that it might be more effective to address issues with other factors affecting house prices rather than looking at the cash rate or lending limit, including:
- Shaping the Australian tax and social security system;
- Planning and zone restrictions;
- the type of apartments built and;
- The nature of the Australian transport networks.
Despite the interest rate put on hold, Australian banks and mortgage lenders have cut home loan interest rates from the RBA’s cycle. While most of the competition earlier this year was in fixed rates, lenders recently began to compete for refinancing businesses (Australia’s Bureau of Statistics recorded record refinancing activity of $ 17.22 billion in July 2021) by lowering floating rates .