MNI INTERVIEW:Aussie Outlook Upbeat Despite Risks-RBA's Harper

By Lachlan Colquhoun

     SYDNEY (MNI) - The outlook for the Australian economy, buoyed by an

improving housing market and a rosier outlook for both employment and inflation

supported by a weaker dollar, remains benign, although recent bushfires and

coronavirus could yet do damage, Reserve Bank of Australia board member Ian

Harper told MNI Friday.

     It was too early to make any "sensible" assessment on the economic impact

of the virus or the fires, but for the moment the economy's outlook was built on

"solid foundations," the policymaker said.

     "The central forecast is for slowly rising growth and for inflation to

return to the Reserve Bank's target range (2-3%)," Harper said.

     "These forecasts are built on more solid foundations than seasonal

employment and drought-affected food prices," he added.

     --DRIVERS

     The RBA recently warned that recent rises in house prices could drive an

increase in household debt as borrowers took out bigger mortgages, but Harper

sees their influence as positive.

     "Rising house prices also stimulate building activity, which is another

driver of growth," he said.

     Rising house prices were a welcome development as the economy recovered,

"helping stimulate building activity" and drive growth, Harper said, adding that

macroprudential measures such as lending controls could be deployed if prices

rose so fast as to pose a threat to stability.

     The Australian Prudential Regulation Authority lifted lending controls in

stages in July 2019, helping fuel a house price recovery which has seen prices

in Melbourne and Sydney bounce back close to the highs of 2017.

     Sydney prices fell around 15% from their January 2017 peak before APRA

eased its restrictions and the RBA began its cycle of three interest rate cuts

to the current record low 0.75%.

     --WEAKER DOLLAR

     Harper, also dean of Melbourne Business School, welcomed the weaker

Australian dollar as a positive factor in helping the RBA hit its inflation and

employment goals.

     "Wages growth will pick up slowly in the face of tighter labour markets and

because a weaker exchange rate discourages imports and favours domestically

produced goods and services," he said.

     "The drivers are rising wages growth as the labour markets tighten, which

will encourage consumption, and the stimulus to prices and activity of a weaker

Australian dollar."

     The RBA Board left rates on hold in November, despite acknowledging a case

to cut, citing the impact a cut then could have had on business and consumer

confidence.

     Confidence was "essential" for people to borrow and invest, Harper said,

more upbeat than recent business and consumer surveys still pointing to lowered

confidence levels.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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