The OECD says the RBA should avoid more rate cuts to save the housing market

FREMANTLE, AUSTRALIA – NOVEMBER 14: Crowds look on as the super moon rises behind the Fremantle War Memorial at Monument Hill (Photo by Paul Kane/Getty Images)

The OECD has backed in behind the RBA, releasing a positive outlook for the Australian economy as part of its latest Global Economic Outlook.

The OECD says “economic growth is projected to pick up to 3% by 2018″ as the fall in resources sector investment tails off, and household consumption, investment, wages, and employment rise”.

No huge surprises there.

But that positive combination of factors also means that “no further easing is projected, and rate increases are projected to begin towards the end of 2017 as spare capacity fades,” the OECD said.

The organisation went further and said the RBA tightening cycle “is appropriate” in 2017 because of “likely monetary-policy developments elsewhere, the cyclical development of the domestic economy and the need to unwind tensions from the low-interest environment, notably in the housing market, which has in many places experienced rising prices for some time”.

The OECD is concerned enough about housing that it seems to imply that the current settings are doing more harm than good.

“Despite the employment of macro-prudential measures to cool the housing market, the net gain from monetary easing has narrowed. Significant housing market concerns remain and there is growing discord between financial market developments and rest of the economy due to the low-interest-rate environment,” the organisation says.

And that means if the economy unexpectedly weakens the RBA should stand pat and leave the heavy lifting to the government and fiscal policy.

“The government envisages fiscal consolidation. In the event of disappointing growth, however, fiscal rather than monetary support should play the leading role given the housing-market concerns and fiscal leeway,” the OECD said.

That might be something treasurer Scott Morrison finds unpalatable. But the OECD says there is “space for fiscal loosening given the low public-debt burden” and suggests “accelerated” infrastructure spending could pay dividends across the economy.

One thing Scott Morrison is likely to agree with is the OECD assertion that “tax reform should be a core element of structural policy”.

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