Time for RBA to lean against bubble: AFR

The RBA can staunch the housing heat with a single rate hike by mid-year. Timed after the US Federal Reserve likely lifts its own cash rate in March, the RBA would not have to fret about excess currency appreciation. It is fond of moving in “double taps” on the presumption that one cash rate change does not do much. But this thinking is founded on research made redundant by the fact that Australia’s household debt-to-income ratio (and the interest elasticity of consumer behaviour) was much smaller in the past than it is today (the ratio was 125 per cent in 2000 compared to 187 per cent in 2017).

The next monetary policy tightening cycle should, by definition, be more cautious. A single hike by mid-year would keep credit risks (and rating agencies) at bay and could be followed by another at year-end if borrowers need further convincing that the cost of capital has to normalise eventually.


AFR opinion piece from Christopher Joye.

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