Report in the Australian Financial Review:
Jeremy Lawson, former senior economist at the Reserve Bank of Australia (RBA), and who is now global chief economist of the $460 billion British fund manager, Standard Life:
- The Reserve Bank of Australia miscalculated a predictable surge in investor-driven imbalances in the frothy housing market
- “They underestimated how strong the investor pulse would be and I suspect they miscalculated how powerful the search for yield is in the current global environment”
- “It was not mendacious – it was just an underestimate of how these dynamics would play out. But once housing imbalances begin they usually prove quite difficult to rein in.”
- Believes the housing market is between 20 and 30 per cent overvalued and presents the RBA and the Australian Prudential Regulation Authority with a “genuine test”
- said the RBA had had a “change of heart” on the need to apply macro-prudential breaks on credit creation
- “They had hoped they had the right policy mix and the housing market would cool of its own volition this year, but that doesn’t seem to be occurring”
RBA ‘miscalculated’ housing bubble risks, says Jeremy Lawson
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If the RBA does use macroprudential tools (such as loan valuation limits, for example) it will take the some of the pressure off to raise rates to combat house price growth.
