The RBA remains in wait and see mode as the earlier heavy lifting on monetary policy flows through to the Australian economy. 

Labour markets are tightening, housing prices are broadly rising, credit flows are trending higher and consumers are more confident now than they were leading up to the pandemic. Most indicators are pointing towards a faster than forecast recovery thanks to record low interest rates along with ongoing fiscal support and containment of the virus. 

From a housing market perspective, home buyers are clearly responding to the unprecedented levels of stimulus available. CoreLogic’s national home value index notched up two consecutive months of growth in November, and settled sales over the past three months are estimated to be around 1% higher than the same period a year ago. With interest rates set to remain at these record lows for an extended period of time, attention is already focussing on how to manage associated risks of an ‘over-heated’ housing market while at the same time allowing the economy to benefit from the stimulus. 

Rising asset prices are a logical outcome of such low interest rates, and hopefully we see the wealth effect flowing through to other areas of the economy as households lift their spending. No doubt regulators and policy makers will be watchful for excessive exuberance in the housing sector; higher household debt levels or a rise in riskier types of lending could trigger a regulatory response. Previous macroprudential interventions have had an immediate dampening effect on housing market conditions.