As part of his commentary on the Westpac-Melbourne Institute Leading Index, Bill Evans, Chief Economist at WPAC on the his Reserve Bank of Australia outlook:

  • The Reserve Bank Board next meets on May 2.
  • The Board is certain to keep rates on hold.
  • As discussed previously the Board is concerned about excessive household leverage which has been boosted by rising house prices. While this concern might be alleviated by a rate hike the real economy is in no shape to deal with higher rates.
  • Considerable spare capacity persists in a labour market with the unemployment rate "stuck" at about 1 percentage point above the full employment level; inflation remains below the Bank's target zone and is expected to remain at the bottom of the zone; and incomes and confidence are restraining consumption.
  • The authorities are therefore opting for a policy mix of steady official rates and heightened regulatory controls around the housing market. Indeed, in the Bank's Board minutes for April it was noted that, "depending on how the system responds to the various measures, members noted that the Council of Financial Regulators would consider further measures if needed