RBA’s Debelle Reiterates Policy Isn’t Tool to Cool House Prices

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Reserve Bank of Australia Deputy Governor Guy Debelle acknowledged that a hot property market fueled by emergency-low interest rates has “distributional consequences,” while reiterating that monetary policy isn’t the right tool to address the issue.

“We recognize that rising house prices heighten concerns in part of the community,” Debelle said in a Podcast released Thursday, in which the RBA’s senior leadership team recounted the bank’s responses to the pandemic. “There are a number of tools that can be used to address the issue, but I don’t think that monetary policy is one of those tools.”

Sydney house prices posted their largest quarterly gain in almost 33 years as cashed-up buyers snapped up high-end properties amid low borrowing costs and a lack of supply. The RBA’s cash rate is at 0.1% and the same level is applied to its three-year bond yield target, which doubles as forward guidance that rates are unlikely to rise before 2024.

Debelle, in the Podcast, repeated comments he made in testimony to a parliamentary panel in Canberra last night.

“It’s important to remember that if we didn’t have that supportive monetary policy, which was leading into those rising housing prices, then unemployment would be unambiguously higher and potentially materially higher than without the monetary stimulus,” he said. “Unemployment clearly has large and persistent distributional consequences.”

The central bank is due to decide at its July 6 meeting whether to roll over the yield target to the November 2024 bond from the current April 2024 maturity. It will also announce whether it plans a third tranche of quantitative easing. Governor Philip Lowe is due to deliver remarks on the policy decision an hour-and-a-half after it is announced.

The leadership team gave no insight into the future path of policy in the podcast.

Australia’s economy has recovered rapidly, having recouped all of its Covid-19 losses in the first quarter, and unemployment has fallen to 5.5% from a pandemic peak of 7.4%. This could suggest the RBA might seek to taper its QE purchases.

Yet, Melbourne’s renewed Covid outbreak and associated lockdown is a large risk to the economy’s outlook that the RBA is closely monitoring.

Debelle told lawmakers last night the RBA would have to “wait and see” on Victoria’s economic impact, adding “with one weekend it’s probably a bit early to tell.”

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