MNI INTERVIEW: Housing Boom Good For Recovery -  RBA's Harper

Higher asset prices demonstrate that the Reserve Bank of Australia's monetary policy is being effectively transmitted to the economy and helping to underpin recovery from the pandemic, RBA Board member Ian Harper told MNI, stressing that he was speaking in a private capacity rather than on behalf of the central bank.

The strength of Australia's property and equity markets should be seen as positive developments behind the economy bouncing back, increasing net wealth and encouraging both consumption and investment, the senior policymaker told MNI.

Downplaying the risks from a double-digit rise in Australian house prices across state capitals in the last year to record highs, Harper attributed the property market boom to "supply conditions and demographic trends to a much greater extent than financial markets."

Equity markets were more sensitive to easier monetary policy than the property market, according to Harper, who noted that this was reflected in pension fund accounts, with the median fund set to post better than 15% growth for the 2020-21 financial year.

BACKS APRA

Harper sees little need for policymaker intervention in the property sector and defended Australia's regulatory and prudential regime, where the RBA does not have direct responsibility for macroprudential measures which might impact the housing market. He believed the country "got that right" and saw "no compelling reason to change."

Macroprudential responsibility rests with the Australian Prudential Regulatory Authority (APRA) and Harper pointed out that there was "generally also co-ordination" between the two institutions if house prices became a problem issue.

If credit growth in Australia created an asset price bubble which "overshot" the objectives of monetary policy, then the central bank and APRA would "modulate the effects" of policy by "tightening macroprudential controls more or less simultaneously," he said.

Harper, now the Dean of the Melbourne Business School, was a member of a committee which recommended the creation of the "twin peaks" system of separating the central bank and macroprudential responsibilities in the 1990s and noted that this arrangement had since been endorsed by two Royal Commissions and a Government inquiry into the financial system.

Harper, who is due to step down from the RBA Board in July, declined to comment on the New Zealand model, where the Reserve Bank of New Zealand has both central bank and macroprudential responsibilities and has intervened this year to dampen property prices, up more than 20% in some areas in the last year. "Institutional design is context-specific," Harper said.