The Reserve Bank (RBA) is expected to leave interest rates unchanged at this week’s board meeting as concerns about the value of the dollar play off against housing market fears, according to Paul Bloxham, economist at HSBC.
Mr Bloxham said the recent appreciation of the Australian dollar (AUD) is likely to be of some concern to the RBA, but fears of ‘over-inflating’ housing prices will prevent any rate reduction.
“While a lower currency would be preferred, the recent AUD appreciation does appear to be mostly for the right reasons,” said Mr Bloxham.
“Chinese growth is lifting and commodities prices are rising.
“With that in mind, the RBA may be more comfortable with the AUD rise than they were when commodity prices were falling,” he said.
According to Mr Bloxham, of greater concern to the Reserve Bank is excessive growth in housing prices.
“There are already some early signs that the RBA is becoming more concerned about the housing market,” he said.
“While rising housing prices are a necessary part of the rebalancing of growth that the RBA is hoping will occur, they would be worried if housing prices accelerate too much.”
In the year to date, combined capital city home values have risen 5.9 per cent, with the Sydney market growing fastest at 8.6 per cent.