RBA possibly signalling that macro prudential controls could do more to slow house prices: Shane Oliver

As expected the RBA left interest rates on hold at 1.5 percent following its March meeting, for the seventh month in a row.

Apart from removing references to soon to be released economic forecasts and the December quarter CPI data and adding in some comments relating to December quarter GDP growth there was hardly any change in the post meeting Statement.

The RBA remains more confident regarding global growth, sees Australian economic growth as okay, regards the labour market as being mixed, sees a gradual rise in underlying inflation and continues to see conditions in the housing market as varying considerably across the country.

As a result it remains comfortably on hold regarding interest rates. As noted last week we now expect the RBA to leave rates on hold for the rest of the year. Another rate cut is still possible but it would require another leg down in underlying inflation. That said if the RBA is to do anything on rates this year a cut is more likely than a hike. A rate hike is unlikely until later next year.

While a hotting up in expectations for US rate hikes this year from three hikes to four starting next week has led some to speculate that this may bring forward RBA rate hikes it is noteworthy that the US economy is further into a growth recovery cycle than Australia as evidence by a much tighter labour market and rising wages growth. And since the Global Financial Crisis RBA interest rate moves have diverged from those in the US - with the RBA hiking in 2009 and 2010 when the Fed was on hold and the RBA cutting rates last year when the Fed had commenced a tightening cycle. So just because the Fed hikes does not mean the RBA follows.

One area where the RBA may be signalling something a bit more interesting though is in relation to the housing market where in the February post meeting Statement it noted that “supervisory measure have strengthened lending standards” to now saying that “supervisory measures have contributed to some strengthening of lending standards” which suggests that the RBA thinks a further tightening in lending standards in relation to lending for housing may be required. Its possibly a sign that more macro prudential measures to slow property market investment may be on the way.

This could take the form of lowering the threshold for banks’ growing total lending to property investors to say 7 percent year on year from 10 percent currently. The RBA’s comments around lending standards are also consistent with recently expressed concerns by the RBA regarding household debt.

SHANE OLIVER is head of investment strategy and economics and chief economist at AMP Capital and is responsible for AMP Capital's diversified investment funds.