Interesting address by Philip Lowe, RBA Governor, to the Anika Foundation, on Delta, the economy, and monetary policy.
Note below how he argues that dwelling prices are not the domain of monetary policy, given what he sees as the core drivers of low affordability/high prices.
He references NIMBYism, household preferences for cars over mass transit (which have only increased with the advent of Delta, given the unappealing idea of sitting on a packed bus with a contagious respiratory disease operating at large), of backyards over apartments (a long run consumer preference shift, but also a WFH/Delta phenomenon as people require more space given the hours spent at home) and the tax advantaged nature of property (CGT & -ve gearing, policies which when tabled for change resulted in the thumping defeat of the Labor party).
As Peter Tulip has called out many times prior, Lowe focuses on zoning as a key culprit, in addition to the above, noting they are areas for regulators and policy makers (outside the RBA) to target rather, rather than using the blunt baseball bat of monetary policy (when a scalpel is preferred).
It was a case of choose your own adventure, with market movements.
The AUD was down, markets modestly up, immediately post the explicitly dovish comments from the Governor.
The idea of yields moving higher or lower, and whether that’s meaningful or not, given movements in the first two (markets and the dollar) are surprisingly difficult to say. It is plausible that expansionary policy should drive yields higher, as, if perceived as likely to be successful, it would bolster expectations of future growth and subsequently higher inflation.
That interpretation runs at odds with the other fairly standard interpretation that lower for longer rates than previously expected should weigh on (depress) longer dated yields and borrowing costs, hence, equating to lower.
We take the first interpretation, placing greater emphasis on the dollar and the market, in combination with Lowe’s comments, as expansionary relative to prior expectations.
A lot of ink, spilled, perhaps, over a relatively modest thing, but the net investment implications is minor additional downside risk to the Aussie dollar, modest marginal support for long duration equities (which we think will be far more buffeted around by US rate developments) and a slightly firmer appetite for risky assets (tighter credit spreads, support for SAA allocations to equities).
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