Time for RBA to Lean Against Bubble

Christopher Joye

In The AFR I argue that RBA governor Phil Lowe made his reputation on research imploring central banks to use interest rates to "lean against" asset price bubbles when they threaten a financial system's stability, yet to date Martin Place has done the exact opposite, cutting interest rates twice last year on the erroneous assumptions that (1) the housing market was cooling and (2) the cuts would not reignite the boom, which, as we warned at the time, is exactly what has happened. If governor Lowe ran money at a hedge fund, he would be forced to cut his losses and reverse-out these mistakes immediately. Every man and their dog, including S&P, the IMF, the OECD, APRA, and Goldman Sachs, amongst sundry others, believes that the RBA-fuelled housing boom is a serious threat to financial stability with S&P warning again this week that it may downgrade both Australia and all the banks' credit ratings unless the current double-digit house price growth slows quickly to sub 6%-7% by October. Free (VIEW LINK)


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