The minutes to this month’s RBA Board meeting are out and beside the usual comments that the Aussie dollar “remained above most estimates of its fundamental value, particularly given the declines in key commodity prices”, and “members considered that the most prudent course was likely to be a period of stability in interest rates”, there is a clear indication that the RBA is getting worried about the heat in the Australian property market.
The minutes reflect the heightened concerns:
Members further observed that additional speculative demand could amplify the property price cycle and increase the potential for property prices to fall later. The main risks in such a scenario would likely be to the stability of the macroeconomy rather than the financial system, particularly if households were to react to declines in their wealth by cutting back on their spending. Members were also updated on some of the recent actions by the Australian Prudential Regulation Authority in this area.
The RBA knows the forensic analysis that is undertaken by the market in reading these minutes so there can be no uncertainty to the aim of these words.
Like Governor Stevens recently the RBA is warning that property prices can and do fall and that any further gains in prices are not only destabilising for the property market but the economy as a whole.
That hasn’t stopped buyers in Sydney and Melbourne however with a new suburb record for the Sydney’s Artarmon over the weekend at a price of $2.95 million. Likewise RP Data reported clearance rates in Sydney and Melbourne over the weekend of 78.3% and 70.5% respectively.
The boom continues.
Under such circumstances only an economic crash would see the RBA move to lower interest rates in Australia again in this cycle.
On currency markets the minutes are mildly positive for the Aussie dollar and even though the Aussie is doing a little better this morning on the back of US dollar weakness in Asia a clear signal that the RBA won’t be lowering rates any time soon because of property could work against the RBA’s aim for a lower dollar in the short term.