There’s a story doing the rounds on the RBA’s dilemma, produced by Nomura.

Nomura’s report says:

  • The RBA faces a “policy dilemma”
  • a tug-of-war between continued below trend growth coupled with rising unemployment and the concerns regarding increasing house prices fuelled by investor buying

“Adding to the RBA’s complex situation, the AUD is making new highs, which will put a drag non-resource exports and slow the recovery in the non-resource sector, while reducing inflationary pressures coming from imported prices. As a result, that the RBA is likely to keep its policy rate on hold for the foreseeable future,” Nomura adds.

Nomura believe, though, that the balance of risk is in favour of rate cut, and there could be situations that could allow the RBA to cut rate further:

  • 1) if AUD reach parity, unless it is driven by stronger commodity prices and fuelled by expectations of better growth
  • 2) if the banking regulator (APRA) decides to put some new measures in place to contain house price appreciation and the credit growth to investors

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The story is incomplete, though, what is missing is Nomura’s final comment, on point number 2:

“Such an action would dramatically alleviate the RBA’s concerns regarding the housing market and reduce the likelihood that lower rates would fuel another further sharp house prices. On that last point, we see this as an unlikely path for the RBA given their stated position on the efficacy of this policy.”

There are no easy options for the RBA here.