{"id":107148,"date":"2025-11-04T10:00:00","date_gmt":"2025-11-03T23:00:00","guid":{"rendered":"https:\/\/en.econostrum.info\/au\/?p=107148"},"modified":"2025-11-04T06:22:18","modified_gmt":"2025-11-03T19:22:18","slug":"rba-holding-firm-house-prices-inflation","status":"publish","type":"post","link":"https:\/\/en.econostrum.info\/au\/rba-holding-firm-house-prices-inflation\/","title":{"rendered":"RBA Holding Firm as House Prices and Inflation Spiral Upward"},"content":{"rendered":"\n

The decision comes at a critical time for the economy<\/strong>, with investor lending growing at its fastest pace in over a decade and property prices hitting record highs. A growing number of economists now argue that by maintaining its current policy settings, the RBA <\/strong>may be fuelling the very inflation it seeks to contain.<\/p>\n\n\n\n

Real Interest Rate Nears Zero, Prompting Increased Risk-Taking<\/strong><\/h2>\n\n\n\n

The issue lies in the widening gap between the RBA\u2019s official cash rate and the country\u2019s inflation rate, which has led to a steep decline in what economists call the real interest rate<\/strong>. According to Fortlake Asset Management\u2019s<\/em> Christian Baylis<\/a>, the real rate is now \u201cclose to zero,\u201d effectively reducing the cost of borrowing despite no formal rate cut.<\/p>\n\n\n\n

Baylis notes that by not adjusting interest rates in response to persistent inflation, the RBA <\/a><\/strong>has \u201cimplicitly, through inertia, allowed another interest rate cut into the economy by not moving the interest rate lever,<\/em>\u201d This dynamic means that while the headline cash rate remains unchanged, the inflation-adjusted cost of borrowing is falling, incentivising more debt-fuelled investment.<\/p>\n\n\n\n

This is already visible in credit markets. Investor loans<\/strong> are rising at a pace not seen in ten years, while regulators have begun warning banks to tighten lending standards. UBS Australia<\/em><\/strong> highlighted that private sector credit has reached a new cycle high, with the nation\u2019s debt-to-income ratio climbing back towards record levels.<\/p>\n\n\n\n

Real estate is a particular area of concern. House prices are rising at nearly 7% annually, a rate that UBS<\/em> says is fuelling a new credit cycle. The combination of high inflation, low productivity, and strong wage growth may continue to suppress the real interest rate, and in doing so, may deepen the housing affordability crisis.<\/p>\n\n\n\n

Impact on Savers, Investors, and Policy Credibility<\/strong><\/h2>\n\n\n\n

A low or negative real interest rate doesn\u2019t affect all participants equally. Borrowers benefit from cheaper debt, but savers see their real returns eroded. \u201cWhen real interest rate falls, that\u2019s good news for the borrowers and not good news for the savers because their real return is declining,<\/em>\u201d said Lochlan Halloway<\/em><\/a>, equity strategist at Morningstar<\/em>. He added that falling real rates boost the present value of future income-generating assets, such as property and shares, encouraging more risk-taking.<\/p>\n\n\n\n

This appetite for risk is now evident in equity markets, where valuations are rising despite economic uncertainty. Economists like George Tharenou<\/em> at UBS<\/em> have flagged \u201cbubble-like characteristics\u201d across a number of asset classes, including Australian equities.<\/p>\n\n\n\n

For RBA Governor Michele Bullock<\/em><\/strong>, the central question is whether to tolerate a low real interest rate or resume monetary tightening, a decision complicated by soft productivity figures and still-elevated inflation.<\/p>\n\n\n\n

The bond market\u2019s shift in expectations reflects this uncertainty. Just weeks ago, traders had priced in a potential rate cut by February 2026. That timeline has now been pushed back to May 2026. Analysts are increasingly sceptical that the RBA can afford to wait much longer.<\/p>\n\n\n\n

Should inflation persist, the bank may be forced into action despite broader concerns about the cost of living and mortgage stress. As Baylis puts it, \u201cIf we get further confirmation that those inflation numbers are here to stay\u2026 it would probably need to raise rates.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Australia\u2019s central bank is facing renewed scrutiny over its interest rate policy after a sharp rise in inflation threw expectations of a rate cut into disarray. The Reserve Bank of Australia (RBA) held the cash rate at 3.6% following its latest meeting, despite signs that borrowing and asset prices are surging.<\/p>\n","protected":false},"author":10,"featured_media":107150,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-107148","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-housing","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33","no-featured-image-padding"],"_links":{"self":[{"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/posts\/107148","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/comments?post=107148"}],"version-history":[{"count":1,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/posts\/107148\/revisions"}],"predecessor-version":[{"id":107149,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/posts\/107148\/revisions\/107149"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/media\/107150"}],"wp:attachment":[{"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/media?parent=107148"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/categories?post=107148"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/en.econostrum.info\/au\/wp-json\/wp\/v2\/tags?post=107148"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}