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RBA happy taking risks with housing market

The central bank insists rates are on the way up soon.

Jack Derwin

Digital Journalist, Your Money

The Reserve Bank of Australia (RBA) has handed down its final interest rate decision for 2018, announcing it will keep the official interest rate at 1.5 per cent.

Read more: What is the Reserve Bank and how does it work?

It came as Australia’s central bank continues to keep a keen eye on declining housing markets on the eastern seaboard.

As steep price falls continue in Sydney and Melbourne, there is some anxiety that future rising rates would place too much pressure on the markets.

It’s created a situation that AMP Capital chief economist Shane Oliver described as a “perfect storm” for the RBA.

“To be honest, I don’t think they are [paying enough attention to the housing market],” Oliver told Your Money chief business reporter Leo Shanahan.

“Overall, I think they seem very relaxed about the property market which I think is very surprising given the acceleration we saw to the downside in price numbers we saw in Sydney and Melbourne when the data came out yesterday,” Oliver explained.

Accordingly, it will be strong employment figures that are needed to maintain a counterbalance to the RBA’s concern, according to investment bank JP Morgan’s senior economist.

“You’ll be seeing them say this is an area that they’re watching very closely but it’s been going on for a while and so far it seems orderly,” Ben Jarman told Trading Day.

“A central bank is inherently going to be more comfortable taking risks on a softer housing market if it’s got a labour market that is performing well,” he explained.

That sentiment is behind the strong consensus that the RBA decision will keep the official interest rate on hold at 1.5 per cent for the first half of next year.

If employment figures were to weaken in 2019 however, the RBA would be forced to recalculate their position, possibly holding interest rates for longer.

Pending new data, however, the RBA’s forecast for rate hikes remains positive.

“As much as they’ve been advising that the next move in rates is likely up in their view, they’re somewhat wary of markets pricing that too soon,” Jarman said.

“They’ve been advocating that rates will go up but they’re not in any rush.”

This article was updated to reflect the result of Tuesday’s decision. 

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