There’s a nice article by William McInnes in today’s Financial Review, Economists expect RBA to ease stimulus, which begins:
Economists expect Tuesday’s Reserve Bank board meeting to acknowledge the economy’s surprisingly strong recovery and to signal some tapering of its $200 billion-plus quantitative easing monetary stimulus.
It would make sense to do so, given the RBA’s ultra-loose monetary policy has played a large part in encouraging massive growth in credit for housing and, hence, rapidly rising property prices (up nearly 2% in June and 15% through-the-year in Brisbane-Gold Coast according to CoreLogic). Longer-term, all the additional money in the economy will likely move on from inflating property prices to inflating consumer prices (e.g. as people spend the capital gains from properties they sell).
Here’s a chart based on the latest lending indicators data from the ABS showing just how much lending for owner-occupied housing has grown up to May 2021. New loan commitments for owner-occupied housing have nearly doubled since early 2020.
Here’s the same data for loans to investors, the amount of which is similar to what we were seeing during the apartment building boom in the middle of the last decade.
So, the RBA would be on firm ground if it chooses to reduce its QE (i.e. bond buying) program. It should avoid destabilising the economy through an over-heated property market and by encouraging households to take on debts which may become problematic in future years when interest rates rise.
Incidentally, here’s a good summary from Business Insider Australia on what RBA Governor Phil Lowe has previously said about monetary policy and house prices:
That article is from February. We should learn this week if the RBA now thinks there is a housing bubble and Australians have gone crazy on debt. It’s difficult to look at the lending and house price data and not worry a little that this is what we are seeing.
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