THE Reserve Bank must raise the official cash rate in coming months before the housing market enters a full boom or bust cycle, according to QUT.
QUT financial economist Dr David Willis says inflated prices and high clearance rates has caused the property market to enter a “bubble.”
“Leaving rates on hold through the summer will allow the housing market to potentially enter into a full boom, which would need significant monetary policy change to bring it from the boil,” Willis says.
“I am calling a rise in either October or November at the latest, because I think the RBA will realise they need to act before it’s too late.”
The cash rate has been on hold at 2.5 per cent since August last year, with the Australian dollar recently falling to US 90 cents.
“This is an opportunity for the RBA to take advantage of the lower currency to start getting rates back to somewhere near normal before the next recession or crisis hits.
“Higher interest rates would allow the RBA to support the economy again, an ability it is lacking right now.
“And the lower currency rates will provide significant export opportunities for our soft and hard commodities,” he says.
Dr Willis says lower currency rates could potentially lead to a spike in inflation as imports rise, but a rate rise would help the economy adjust to it.
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