The RBA is making it very clear – the boom rolls on.
So the RBA Governor Phil Lowe gave a speech last week where he schooled markets on just what’s going to happen with interest rates.
Basically, markets were pricing in a rate hike sometime in the next twelve months.
He reckons they’re dreaming.
Reserve Bank of Australia governor Philip Lowe is challenging market expectations for interest rate increases before 2024, and has pushed back against suggestions that rate rises and tougher lending standards can be used to quell rocketing house prices.
The market was pricing in the cash rate to rise from the current 0.1 per cent to 0.25 per cent by the end of 2022, 0.6 per cent by the end of 2023, and 1 per cent by the end of 2024.
… He said the delayed recovery meant wages growth would take longer to hit the 3 per cent mark the central bank believed was needed to drive inflation sustainably within its 2 per cent to 3 per cent target band.
“Our judgment is it will take some time for wage increases to lift to a rate that is consistent with achieving the inflation target … this judgment stands in contrast to the expected path of the cash rate implied by market pricing.”
“These expectations are difficult to reconcile with the picture I just outlined, and I find it difficult to understand why rate rises are being priced in next year or early 2023,” Dr Lowe said.
Seriously. What’s wrong with you guys. Rate hikes aren’t on the table to 2024 at the earliest. It’s like you guys aren’t even listening.
He also made it clear that the RBA is taking no responsibility for the housing boom, even though it was actually the RBA’s fault.
Basically, it’s Canberra’s problem now.
On house prices, the RBA governor said he wanted to “make clear” it was not on the bank’s agenda to use interest rate increases to slow booming house prices, which are expected to grow by upwards of 20 per cent this year.
“While it is true that higher interest rates would, all else equal, see lower housing prices, they would also mean fewer jobs and lower wages growth,” Dr Lowe said, citing the importance of low-interest rates to business growth.
“This is a poor trade-off in the current circumstances.”
“While monetary policy is contributing to higher housing prices at the moment, the way to address these concerns is through the structural factors that influence the value of the land upon which our dwellings are built.
“The factors include: the design of our taxation and social security systems; planning and zoning restrictions; the type of dwellings that are built; and the nature of our transportation networks.
“These are all obviously areas outside the domain of monetary policy and the central bank.”
Yup. Low interest rates cause house prices to boom. But it’s not our problem.
Sorry, not sorry.
Let the boom continue.