The RBA is short on ammunition

It’s definitely worth revisiting my post from June 2015 now that we may be in the very early stages of a downturn in the housing market. See below. 

History tells us the RBA is now short on basis points (ammo). On three occasions over the last fifteen years, the RBA has burnt at a minimum 200 basis (on top of government stimulus packages, grants, etc..) points to stop a housing crash and to allow household credit to continue to expand uninterrupted (hence no national housing bust to date).

2000-2002 – 6.25% to 4.25% (2% drop)

2008-2009- 7.25% to 3% (4.25% drop)

2011-2013- 4.75% to 2.5% (2.25% drop)

Today the reserve rate is 2%. With the $AUD a third-tier currency (weakens on the back of bad news locally, or internationally), a 0% interest rate would simply crush the local currency.. especIally if the Fed raises its interest rate.

Lindsay David is the author of Australia: Boom to Bust and  Print: The Central Bankers Bubble. David recently founded LF Economics and holds an MBA from IMD Business School

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