"RBA is blowing the mother of all housing bubbles": Chris Joye

The Australian Financial Review columnist Chris Joye has suggested "the Reserve Bank of Australia's governor Glenn Stevens is trying to unravel a Gordian knot created by his institution's inconsistencies".

"The RBA is blowing the mother of all housing bubbles to deflate an overvalued exchange rate," Joye wrote today.

He said "it is replacing one asset pricing conundrum with another, arguably more dangerous, one" with "unprecedented monetary policy settings in the form of the cheapest borrowing rates in history to put downward pressure on the Aussie dollar".

Joye suggests "when the RBA cut rates in February it judged the local housing market was cooling".

"Much like it thought rate cuts in 2013 would not fuel an unsustainable housing boom that would force regulators to introduce macro-prudential rules to slow credit growth running at three times the rate of incomes," Joye wrote.

"On all these counts the RBA's forecasts have proven badly wrong.

"It has probably been blindsided by housing dynamics over the last couple of years because it has never confronted these conditions before.

"Back in 1991 the value of housing debt divided by disposable household incomes was just 35%.

"Today it is over 140% - beyond any previous peak.

"And climbing every day."