RBA makes hawks cry
Australia refrains from hiking interest rate to cool house prices
SYDNEY: The Reserve Bank of Australia’s plan to push non-interest rate measures to cool house prices has sent hawkish economists into retreat.
TD Securities and AMP Capital Investors Ltd joined traders in drawing back from forecasts for early rate increases in response to policy makers’ hardening rhetoric on curbing mortgage lending to housing investors. RBA governor Glenn Stevens is forecast to keep the benchmark unchanged at a record low today.
“We remain concerned that macro-prudential tools are being considered to be a substitute for well-managed monetary policy,” said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore.
“If regulators are determined to cool the housing market with unconventional, and untested, tools, as a substitute for a higher cash rate, then our March timing for the first RBA hike has to be pushed out towards mid-year.”
Australia’s housing market has been pumped up by the RBA keeping its cash rate at 2.5% for more than a year, as it seeks to bolster an economy hampered by the end of a mining boom and a currency that policy makers have called too high.
Investors accounted for a record 49% of new home loans in July. Demand for high-risk mortgages, including interest-only loans, is setting the stage for a jump in mortgage delinquencies when interest rates rise, Moody’s Investors Service said last month.
Kieran Davies, chief economist at Barclays Plc in Sydney, said the Australian Prudential Regulation Authority is likely to increase the risk weighting for investor mortgages. He estimates that a doubling of the weighting would roughly equate to a 25-basis point rate tightening for investors, or about half that for the housing market as a whole.
Stevens signalled the deepening conundrum when he said in a speech the day after the Sept. 2 policy meeting that he was unwilling to drive house prices higher to speed a reduction in the jobless rate, then at 6.4%.
Those concerns eased a week later when data, which drew skepticism, showed a record 121,000 jobs added in August, driving unemployment down to 6.1%.
The economy’s struggles to cope with the end of a record mining-investment boom have prompted the RBA to say at each meeting this year that “the most prudent course is likely to be a period of stability in interest rates.” — Bloomberg