Add JP Morgan to the chorus of analysts who agree it’s now increasingly likely more macro-prudential restrictions are on their way to the housing market.
In a research note following yesterday’s RBA minutes, JP Morgan interest rate strategist Sally Auld said that it’s “the first time in a while that we have seen the RBA refer to risks around the housing market in such an explicit manner”.
With weakness evident in the labour market, the RBA is tasked with managing a housing market that’s overheating while also trying to support other areas of the economy. In this environment, Auld said that adjusting interest rates would be ineffective policy. Instead, the case for further macro-prudential regulations has become “more pressing”.
“Risk management for the RBA at present is clearly a two-sided process, and sole reliance on the interest rate tool seems inadequate in the current circumstances.”
Auld also noted the RBA’s wording around commodity prices, where high prices for commodities such as iron ore could persist for longer than previously thought. In her view, “this allows scope for a larger positive impact on the domestic economy than perhaps is implied in current forecasts”.
Auld also provided a brief summary of other macro themes touched on in the RBA minutes. Of note was that the RBA expects only wages and inflation to continue rising, but only slowly and there is still spare capacity in the labour market. The resilience of the Aussie dollar is also adding to diffculties as Australia moves away from being a mining-focused economy.