As expected no change to interest rates from the May meeting of the Reserve Bank board yesterday as the central bank again made it clear that the housing sector was its prime area of worry.
In fact from the tenor of the comments about the global and local economies and an acknowledgement that the Australian jobs market might be showing signs of life, it was a pretty standard report card from the RBA for the months of April and May.
But Governor Philip Lowe’s post meeting statement made it clear the bank is closely watching developments in the Australian housing market.
Dr Lowe makes a speech on household debt and housing in Brisbane later today which will go some way to laying out more detail on the bank’s thinking about the threats from the house price boom.
It will be a speech that will sound surprisingly confident because a sub text he will discuss will be the resilience of the financial system in the face of record household debt and record housing prices in some markets such as Sydney and Melbourne.
Housing affordability remained a central concern of the bank’s deliberations according to yesterday’s statement from Dr Lowe and the bank acknowledged that “the recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness”.
“Conditions in the housing market continue to vary considerably around the country. Prices have been rising briskly in some markets and declining in others.
"In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. Growth in housing debt has outpaced the slow growth in household incomes,” he said.
And he pointed out that “Lenders have announced increases in mortgage rates, particularly those paid by investors and on interest-only loans” which is what the RBA and other regulators, such as APRA want to see happening.
There is likely to be more in Friday’s second Monetary policy Statement from the bak which was discussed yesterday and which appeared in a one paragraph summary which read:
"The Bank’s forecasts for the Australian economy are little changed. Growth is expected to increase gradually over the next couple of years to a little above 3 per cent. The economy is continuing its transition following the end of the mining investment boom, with the drag from the decline in mining investment coming to an end and exports of resources picking up.
"Growth in consumption is expected to remain moderate and broadly in line with incomes. Non-mining investment remains low as a share of GDP and a stronger pick-up would be welcome,” Dr Lowe’s statement said.
"Inflation picked up to above 2 per cent in the March quarter in line with the Bank’s expectations. In underlying terms, inflation is running at around 1¾ per cent, a little higher than last year. A gradual further increase in underlying inflation is expected as the economy strengthens,” Dr Lowe said.
Turning to the economy, Dr Lowe again highlighted a weaker labour market with the unemployment rate moving a little higher over recent months, but he pointed out that employment growth is now a little stronger.
“The various forward-looking indicators still point to continued growth in employment over the period ahead. The unemployment rate is expected to decline gradually over time. Wage growth remains slow and this is likely to remain the case for a while yet,” Dr Lowe said.
And the bank was a bit more upbeat about the global outlook despite continuing medium-term risks from China.
“The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia’s national income,” Dr Lowe said.
In a brief note late yesterday, the AMP”s chief economist, Dr Shane Oliver said:
"With the economy growing and headline inflation back within the RBA’s 2-3% target zone the pressure to cut rates again has reduced. But by the same token it’s too early for the RBA to think about raising rates given continuing low underlying inflation pressure, very high underemployment, record low wages growth and a still too high $A.
“Signs that Sydney and Melbourne property markets may be starting to cool – thanks to bank rate hikes, tightening lending conditions, all the talk about a property bubble and rising unit supply – add to the RBA’s flexibility on rates."
