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Australia RBA wary of stoking house prices with lower rates
September 3, 2014 / 3:26 AM / 3 years ago

Australia RBA wary of stoking house prices with lower rates

ADELAIDE, Australia, Sept 3 (Reuters) - Australia’s top central banker on Wednesday signalled further cuts in interest rates were unlikely as it would be “unwise” to risk further inflating already high house prices.

Reserve Bank of Australia (RBA) Governor Glenn Stevens said policy was already very accommodative and that was the right setting to support sectors outside of mining.

However, the central bank did not want to foster too much build-up of risk in the financial sector, such that people became overextended.

“It is stating the obvious that at present, while we may desire to see a faster reduction in the rate of unemployment, further inflating an already elevated level of housing prices seems an unwise route to try to achieve that,” Stevens told an economics event in Adelaide.

The RBA this week held interest rates at a record low of 2.5 percent, marking 12 straight policy meetings since it last cut.

Mortgage rates are also near historic lows and have been stoking demand for homes, driving prices up almost 11 percent in the year to August, according to property consultant RP Data.

Stevens said a recent rise in unemployment to a 12-year high of 6.4 percent was “concerning”, though he cautioned that it was hazardous to read too much into one month’s data.

“The bank’s reading, which we have had for a while, is that the labour market has a degree of spare capacity, and that it will be a while before we see unemployment decline consistently,” said Stevens.

He noted that leading indicators suggested the economy had continued to grow in the current quarter, after a slowdown in the second quarter.

Government figures out Wednesday showed the economy expanded by 0.5 percent in the second quarter, from the first when it had grown by a brisk 1.1 percent.

“Taking the two quarters together suggests a picture of moderate growth,” said Stevens. “We can ask what has been happening more recently. The answer is that growth is continuing.”

Surveys pointed to an upgrade in spending plans by businesses outside of mining, though Stevens said he would prefer to see a more substantial increase over time. (Reporting by Wayne Cole; Editing by Eric Meijer)

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