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RBA Warns Gov’t of Rising Risks
World Economy

RBA Warns Gov’t of Rising Risks

The Reserve Bank of Australia’s latest six-monthly assessment indicates the financial system is sound, but highlighted growing risks from the surge in house prices, particularly in Auckland, as well as from the dairy sector.
Reserve Bank Governor Graeme Wheeler signaled further house lending restrictions, which he called ‘macroprudential’, was on the cards, Yahoo Finance reported.
“We need to do more analysis, we need to have discussions with the finance minister, but I think it’s fair to say that we’re seriously looking at macroprudential.”
He said he would not yet be taking further steps to rein in housing demand, but lending restrictions were on the cards.
He wants the government and Auckland Council to do more. “So that’s where a lot of the solution lies. It’s trying to generate a greater supply side response. “It’s not simply this can be fixed with macroprudential policy. These imbalances are significant.”
The government’s budget later this month, and a decision on Auckland Council’s Unitary Plan in August, could help alleviate some of the supply side constraints, he said.
Labor’s finance spokesperson Grant Robertson said Wheeler’s decision not to impose new measures now, meant the ball was firmly in the government’s hands to solve Auckland’s housing shortage.
“The Reserve Bank feels it’s done its share of the work in the housing crisis. The government now has to step up and it’s failed to do that over the last few years and I actually can’t see that changing over the short term.”

 Short-Lived Boost
The Reserve Bank’s rate cut has rallied consumer confidence but it’s likely to be only a short-lived boost, economists say.
Confidence jumped in May, rising 8.5% according to the Westpac/Melbourne Institute index of consumer sentiment released on Wednesday.
The index rebounded from a 4% fall in April, rising to 103.2 points, putting consumer sentiment 0.8% higher than it was in May last year.
Westpac chief economist Bill Evans said the leap in confidence flowed from the RBA’s move to cut rates to an all-time low of 1.75% last Tuesday.
“Our analysis indicates that the dominant driver of the boost to confidence has been the rate cut,” Evans said in a statement.
“Sharp increases in the index in response to rate cuts are fairly common, although they depend somewhat on other events at the time and whether moves were expected.”
Commonwealth Bank senior economist Gareth Aird noted that confidence was also supported by official figures showing consumer prices fell 0.2% in the March quarter.

 

 

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