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The Reserve Bank rejects suggestions cash rates will lift sooner than expected

Governor Philip Lowe has shut down suggestions the Reserve Bank of Australia (RBA) will lift the cash rate to cool the property market.

Speaking to mental health research non-profit, the Anika Foundation, Dr Lowe explained the side effects of lifting the cash rate would be too dire to consider in the current circumstances.

“I would like to address the question of housing prices, as some analysts have suggested we might lift the cash rate to cool the property market. I want to be clear that this is not on our agenda,” Dr Lowe said on Tuesday.

“While it is true that higher interest rates would, all else equal, see lower housing prices, they would also mean fewer jobs and lower wages growth. This is a poor trade-off in the current circumstances.

“That is not to say that there aren’t public policy issues to be addressed here. On the financial side, the issue is the sustainability of trends in household borrowing.

“We are continuing to watch this closely, with the Council of Financial Regulators discussing possible regulatory steps if lending standards deteriorate or credit growth accelerates too much.”

Dr Lowe went on to explain many potential solutions for the housing affordability crisis could not be solved by the Reserve Bank.

“More broadly, society-wide concerns about the level of housing prices are not best addressed through increasing interest rates and curbs on lending,” he said.

“While monetary policy is contributing to higher housing prices at the moment, the way to address these concerns is through the structural factors that influence the value of the land upon which our dwellings are built.”

Dr Lowe noted these factors include:

  • The design of our taxation and social security systems
  • Planning and zoning restrictions
  • The type of dwellings that are built
  • The nature of our transportation networks.

“These are all obviously areas outside the domain of monetary policy and the central bank,” Dr Lowe said.

“Our job is to achieve the inflation target and support the return to full employment in Australia.

“The package of policy measures we have put in place has us on a path to do that. Delta is delaying progress, but it is not expected to derail our resilient economy.”

Dr Lowe also addressed the cash rate more broadly, explaining they would also require actual inflation to maintain within 2-3 per cent for a sustainable period. He specifically noted a sustainable period was not just a few quarters.

He also pointed out cash rates won’t be able to change until Australia maintains a tighter labour market.

“Our assessment is that wages will need to be growing by at least 3 per cent. We remain well short of this. Even in industries where there has been strong demand for labour, wage increases remain mostly modest,” he said.

Dr Lowe noted labour market data would be difficult to interpret over the next few months, with many people classified as ‘unemployed’ when they may eventually go back to their initial workplace once restrictions ease.

He urged businesses to keep in contact with experienced employees.

“It doesn’t make much sense to let workers go, only to have trouble hiring when restrictions are eased,” Dr Lowe said.

“Many large firms also have balance sheets that are in good shape and they have expansion plans based on the expected easing of restrictions.

“Business investment was on an upswing pre-Delta, and it is reasonable to expect that we will return to this as restrictions are eased, demand picks up again and uncertainty starts to recede.”

However, he recognised small and medium businesses are still facing difficult conditions.

“Many [SMEs] are in ‘wait, survive and see’ mode, having experienced a large drop in revenue,” he said.

“Government assistance is helping, but the longer they have to wait before reopening, the more difficult things will become and the greater the potential damage to this important part of the economy.

“For some businesses, there is a limit to how long they can wait. So the sooner we can open safely the better.”

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Jessamy Tredinnick

Jessamy Tredinnick was the news journalist for Elite Agent Magazine from June 2021 - October 2021. For current stories, news alerts or pitches, please email