Why is the RBA stimulating the housing market?

Anecdotal evidence suggests that prices have started to rise again in the September quarter. This follows two interest rate cuts by the Reserve Bank to the lowest level in history (1%). Why did the Bank do this? House prices, particularly in Melbourne and Sydney, remain absurdly expensive (relative to median incomes) and it is disappointing that the central bank has seen fit to add stimulus to the market. Additionally, Australian householders lead the developed world in terms of their debt to income ratio. Is it sensible to encourage further borrowing?

The Australian economy is certainly slowing but is hardly tumbling into an abyss. It seems the politically sensitive nature of housing has helped spur the Reserve Bank into action.

Australia has not yet reached the desperation phase of negative official interest rates or quantitative easing (QE), but we have an uneasy feeling that such thoughts are running through the mind of the Governor of the Reserve Bank. In a recent speech he said “...we are seeking to understand what is going on here.” He was referring to strong jobs growth but slowing economic growth and no growth in consumption per person. It is not exactly comforting that the man in charge of pulling the interest rate levers (and potentially initiating QE) is struggling with the economic messages.

Access a global multi-asset investment strategy

Pyrford seeks to provide a stable stream of real returns over the long term with low absolute volatility and significant downside protection. To find out more, click the 'contact' button below.

BMO Global Asset Management (Asia) Limited (ARBN 618067959), Pyrford International Ltd (ARBN 165504414) and LGM Investments Limited (ABN 19 381 443 479) are exempt from the requirement to hold an Australian financial services licence under the Corporations Act in respect of the financial services each provides to "wholesale" investors (as defined in the Corporations Act) in Australia. Pyrford International Ltd and LGM Investments Limited are regulated by the Financial Conduct Authority under UK laws, and BMO Global Asset Management (Asia) Limited is regulated by the Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.

BMO Global Asset Management (Asia) Ltd ARBN 618067959 is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the financial services it provides to wholesale investors (as defined in the Corporations Act) in Australia. BMO Global Asset Management (Asia) Ltd is incorporated in Hong Kong and authorised and regulated by the Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.