Australia’s red-hot housing market warrants “careful monitoring” by policymakers, especially as household balance sheets continue to rise, the minutes of the August 1 Reserve Bank of Australia (RBA) meetings showed Tuesday.
Although there are some signs that housing market conditions are stabilizing, capital regions such as Sydney and Melbourne continue to see strong price growth. What’s more, “overall housing credit growth had continued to outpace the relatively slow growth in household incomes.”
The RBA held its trend-setting interest rate at a record low of 1.5% earlier this month, where it has stood since August 2016.
Policymakers are under growing pressure to begin normalizing interest rates sooner rather than later, particularly as house prices in the cities of Sydney, Melbourne and Canberra continue to rise at breakneck speeds. At the same time, the RBA still has plenty of scope for keeping policy highly accommodative with inflation sitting below target and wage growth failing to gain traction.
Last month, RBA Governor Philip Lowe told the Anika Foundation Luncheon in Sydney that “the persistent slow growth in wages is creating a challenge for central banks.”
A stronger Australian dollar that has flirted with 80 U.S. cents has also tied the RBA’s hands. The Aussie approached 81 U.S. cents at the end of July before correcting sharply lower during the following weeks. The AUD/USD exchange rate was last up 0.2% at 0.7866.