Westpac’s chief economist Bill Evans on the RBA Minutes today:
(Bolding is mine)
Says the RBA is becoming significantly more concerned about the recent build-up in house prices in Australia
- The key quote is: “Policy also needed to be cognisant of the risks to future growth that could accompany a large further build-up in asset prices particularly if that was associated with an increase in leverage”. This is a much more alarmist tone than we saw in the Governor’s statement which followed the Board meeting on September 2
Adds:
- There is some cautious optimism around the outlook for business investment noting that the Capex survey was implying modest growth in non-mining investment over 2014-15
Evans concludes:
- This is the first time we have seen the Bank show genuine alarm at the recent lift in house prices.
- The minutes are not signalling any imminent policy change and by emphasising ongoing slack in the labour market and soft wages growth it is allaying any concerns around rising interest rates.
- Specific reference to the Australian Prudential Regulation Authority is consistent with its signalling some vigilance around house prices although note that it does not yet consider that a damaging lift in leverage has occurred.
- The minutes also refer to market pricing being for the cash rate to be unchanged “for the next year at least”. Arguably, central banks favour quoting market pricing when it concurs with their own preferences.
- These minutes further emphasise that the Bank has no intention of further cutting rates despite concerns with the labour market and business investment but we don’t think it would be sensible to read these minutes as implying any rate hikes in the near future.
- We remain comfortable with our forecast that the next move in rates will be up but not until August next year.
