The RBA’s dilemma is that with household debt so high, the debt service implications of any rate hike will be severe, suggests Rob Carnell, Chief Economist at ING.
“With household debt to incomes ratios pushing beyond 190% and accelerating (worse than the US or the UK before the global financial crisis), markets were looking for a nice slowdown in home loan growth in August, in response to tightening lending conditions imposed by APRA. August loans grew only 1.0% MoM, a decent fall from the 2.8% growth registered for July, but still on the high side (consensus was looking for a 0.5% MoM rise).”
“The RBA’s dilemma is that with household debt so high, the debt service implications of any rate hike will be severe, but with APRA’s policies only biting weakly, the longer they put off using the big stick instead of hoping that macroprudential regulations will do their work for them, the worse the potential downside from any accidental over-tightening. In our view, the arguments for an earlier than priced RBA hike are there – notwithstanding the awful retail sales data recently. This looks like a choice between slightly slower growth and lower inflation now, and much weaker growth and potentially deflation later.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.