Professor Ross Garnaut is arguably Australia’s senior economist and he has a clear message for RBA governor Stevens – forget your fixation with housing, the “whole economy” need lower interest rates now.
The SMH reported over the weekend that Garnaut said the economy is facing “very difficult circumstances” and that the Aussie dollar needs to fall.
“We needed a lower real exchange rate 18 months ago,” Garnaut said.
Indeed as we reported Friday, Austrade data shows that most Australian industries are more competitive than their global peers, suggesting that the high Aussie dollar and high relative interest rates in Australia have a large role to play in the slow pace of the economic transition.
Garnaut said it’s time to stop running monetary policy on the back of what is or is not happening in Australia’s housing market.
There may be excessive price inflation in housing, and if that is the case it is very important that we deal with that problem with specific measures rather than running our whole monetary policy to suit the housing sector.
Garnaut took aim at the “privileged position” that housing holds for capital adequacy purpose when banks calculate their capital requirements while also taking aim at negative gearing.
It is an important conversation that Prof Garnaut is trying to ignite, as governor Stevens recently said it was time for animal spirits to get the economy moving because he’d done what he could on monetary policy.
Garnaut said that by addressing housing via changes to taxation and how banks measure capital frees up monetary policy to work for the good of the whole economy.
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