RBA Governor Cites Property Market Rebound for Surprise Rate Hike

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Reserve Bank of Australia Governor, Philip Lowe, has revealed that the recent rebound in the country’s property market was one of the factors that led to the bank’s surprise decision to raise interest rates to an 11-year high of 3.85%.

Speaking at a dinner in Perth, Lowe provided additional insights to accompany the brief statement released alongside the rate hike. He explained that the pause in rate increases in April was to assess the economy further.

“Since [the April meeting], we have seen further evidence that the Australian labour market is still very tight, that services price inflation is proving to be uncomfortably persistent abroad, and that asset prices – including the exchange rate and housing prices – are responding to changes in the interest rate outlook,” he said.

Governor Lowe‘s remarks on the recent increases in property prices in most of the state capital city markets go beyond what was stated in the official statement released on Tuesday.

While the statement only referred to the “earlier decline in housing prices” and the resultant “substantial slowing in household spending,” Lowe’s recent comments indicate a shift in the property market and its impact on the economy.

Data from CoreLogic, Domain, and other reliable sources suggest that national home values have stopped declining and are now upward. While the Reserve Bank of Australia (RBA) does not set rates based on home prices, it does consider how households adjust their spending based on their wealth level. 

In addition to property prices, the RBA keeps a close eye on rental prices, as they are a key component of the consumer price index (CPI) basket of goods and services. 

“Looking overseas, we see worryingly persistent services price inflation,” Governor Lowe said. 

The governor’s comments underscore the RBA’s focus on stabilising the economy, even if that means taking unpopular decisions.

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