The head of the Reserve Bank of Australia says there is too much focus on Sydney house prices, and a further interest rate cut is still possible.
Speaking at The American Australian Association luncheon, governor Glenn Stevens said a “good deal” of the effect of easier monetary policy comes via the housing sector, but commentary is too focused on Sydney.
“Then there are dwelling prices, which, at a national level, have already risen considerably from their previous lows, at a time when income growth has been slowing. Popular commentary is, in my opinion, too focused on Sydney prices and pays too little attention to the more disparate trends among the other 80% of Australia.”
Stevens didn’t deny that Sydney house prices are booming, however he expressed caution over the Sydney focus dictating the rest of the economy.
“That said, it is hard to escape the conclusion that Sydney prices – up by a third since 2012 – look rather exuberant. Credit conditions are only one of several factors at work here. But credit conditions are very easy.
“So while the conduct of monetary policy can’t allow these financial considerations to dominate the ‘real economy’ ones completely, nor can it simply ignore them. A balance has to be found.”
Despite the debate over low mortgage rates causing high house prices, Stevens says another rate cut is possible.
“The Board has, moreover, clearly signalled a willingness to lower it even further, should that be helpful in securing sustainable economic growth,” he said.
“The Board has been proceeding with a degree of caution that is appropriate in the circumstances. It also has, I would say, a realistic assessment of how much monetary policy can be expected to achieve in supporting the adjustment the economy needs to make.”