Economists focus on RBA policy options
The focus this week for economists was the likely use of regulations to pour a bucket of cold water over housing investors.
AMP chief economist Shane Oliver hit the nail on the head as he analysed the RBA's half-yearly Financial Stability Review.
"The focus looks like it may be on tougher capital requirements and interest rate tests banks apply when assessing new loans, rather than restrictions on loan-to-valuation ratios," he said.
"It's likely that if the property market does not soon cool an announcement could be made in the next few months."
RBA assistant governor Malcolm Edey and financial stability head Luci Ellis confirmed Dr Oliver's view at a Senate committee hearing, when they discussed capital ratios and flagged an announcement later this year.
UBS economists Scott Haslem and George Tharanou predicted capital buffers would likely be the preferred option for the RBA.
"We see the use of newer macro-prudential tools, such as New Zealand-style loan-to-value (LVR) caps, as very unlikely, given these will mostly hurt equity-limited first home borrowers, who are currently a record low share of housing activity, rather than investors," they said.
Dr Ellis confirmed limits on LVRs were not on the agenda because they would "hit the wrong part of the market", as Tharenou and Haslem said.
The RBA is reluctant to use higher interest rates to stifle the boom, because much of the economy is far from booming.
The RBA's credit figures on Tuesday were a reminder of that.
Commonwealth Bank economist John Peters said moderate growth in credit was a "natural response" to low interest rates.
"However, overall credit growth remains well below long run average levels, so the RBA, although showing increasing concerns about investor borrowing for housing investment, is probably reasonably content that the numbers confirm that there is little real evidence of any debt fuelled cyclical upswing," Mr Peters said.
On Wednedsay came news of weak growth in retail trade.
"The detail was also disappointing, suggesting a cyclical loss of momentum consistent with a shift back to more conservative consumer spending behaviour," Westpac economist Matthew Hassan said.
ANZ economists Katie Hill and Riki Polygenis said they were "cautiously optimistic" about consumer spending, after consumer confidence had stabilised.
"However, low wages growth and ongoing consumer caution are likely to continue to weigh on household spending, while rising house prices provide some offset (through wealth effects and a lower household saving rate)," they said.
On Thursday, a lift in residential building approvals showed there was "still life left in housing", Citigroup economists Josh Williamson and Paul Brennan said.
Housing would "boost economic growth for at least another 12 months", they said.
Most economists looked past another key feature of the data - non-residential building, where the value of approvals as a proportion of GDP is at a level typical of recessions.
Commonwealth Bank's Diana Moussina said this was "one of the weaker parts of the story in the August data".
