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The strength of the housing market has caught the Reserve Bank “completely off guard” and its decision to consider bringing loan-to-value ratio restrictions back is not surprising, an economist says.
“As recently as the August monetary policy statement, they were forecasting negative 7 percent house price inflation for the year ended December 2020,” said Westpac chief economist Dominick Stephens.
“The latest data is clearly showing that we’re going to get something more like positive 9 so they’ve had a 16 percentage point surprise … and they’re scrambling to catch up,” Stephens said.
“They’ve been facing a bit of a conundrum recently. They’ve had to reduce interest rates to prevent inflation dropping away but that has sparked a house price boom and the lift in prices is causing widespread concern around society and is also a threat to financial stability.”
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