Home News Why house prices won't move the needle for RBA to hike cash rate

Why house prices won't move the needle for RBA to hike cash rate

Font size :

Interest rates are seen to remain stagnant in the near term.

Despite the growing concerns about housing prices, the Reserve Bank of Australia (RBA) does not see them as a consideration when considering whether to hike interest rates.

This is the view of RBA board member Ian Harper, who told the Wall Street Journal (WSJ) that the house prices "simply would not matter" in the central bank's decision to move interest rates.

"The bank will raise interest rates when it has a basis for doing that — because inflation is starting to pick up. When all that starts to line up, who cares what’s happening to house prices," he told WSJ.

RBA has left interest rates unchanged since August 2016 as Philip Lowe's tenure as RBA governor focused more on financial stability concerns. There were also fears that further rate cuts would result in a hike in home prices and household debt levels.

Meanwhile, many also believed that an untimely interest hike would further put pressure on home prices particularly in Sydney and Melbourne -- a situation that would boost risks of unfavourable economic impact and would disturb financial stability.

For Harper, the current condition of the economy is what ultimately matters the most in making interest rate hike decisions.

For instance, while income growth has been steady, it remains sluggish and unable to help Aussies face the high household debt levels.

With this, Harper said there is no need to change the monetary policy setting in the near-term.

“We’ve made clear that there isn’t a case for cutting interest rates down, and there isn’t a case for putting interest rates up. Steady as she goes. That is actually the best thing the bank can do for encouraging the confidence and stability that would then feed into higher wages. We are not jerking anything around, we have beady eyes on the forecasts. We are still sticking with this forecast. We are going to get there, but it is slow and steady," Harper said.

RBA projects that a gradual decline in unemployment will result in a pickup in wage pressures, helping move underlying inflation back to the medium-term target of 2-3%.

Currently, annual wage growth is a little over 2%, which is under the 3.5% level required to impact inflation.

 

Related stories:
Low-interest rates limit price growth, economist says
The reason behind central bank's efforts to maintain interest rate

 

Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Get help from a local mortgage broker

Mortgage News and Articles

Buyers seek brokers' help to navigate the home loan market Buyers seek brokers' help to navigate the home loan market

There is a surge in borrowers availing themselves of mortgage brokers Read more

Big Four’s customer satisfaction drops due to the Royal Commission Big Four’s customer satisfaction drops due to the Royal Commission The country’s four major banks saw a 3.6% drop in customer satisfaction rating ... Read more

Aussies still troubled by housing costs despite market downturn Aussies still troubled by housing costs despite market downturn The rate of decline is not enough to make homes affordable to most first home buyers ... Read more

The Keys to Performing a Proper Property Inspection The Keys to Performing a Proper Property Inspection A property inspection is key when you're serious about buying a home or property, but how do you know what to look for? ... Read more

More mortgage news and articles

Sponsored Links

Tuesday, Oct 23, 2018
Top Featured Rates
Top Bank Rates

Get help choosing the right home loan

Let us help you find the right home loan for your needs.

Tell us a bit about your circumstances:
  • Purpose of mortgage
  • Household Income
    $
  • How much do you want to borrow?
    $
  • How much deposit do you have?
    $
  • How much is your house worth?
    $
  • How much do you still owe on your mortgage?
    $
  • What type of mortgage do you have?


  • How much is your new home?
    $
  • How much do you want to borrow?
    $
  • How soon do you want a mortgage?
Next
  • First name
  • Last name
  • Where do you live?
  • Phone number

Special Offers

Related Keywords