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Dr. Mark Sinclair
Dr. Mark Sinclair, Mentor Education

RBA moves to stop rising unemployment but risks house price bubble.

20 August 2013

UBS analyst Jonathan Mott has warned that the RBA’s decision to cut the interest rate to a record low runs the risk of sparking a surge in property prices that could form an unstable house price bubble.

The prominent banking analyst has said that the, “ingredients are now in place for another bout of sustained house price inflation in Australia and Sydney in particular.”

Jonathan Mott UBS banking analyst

He elaborated by speculating that,“given Aussie housing is already expensive by most metrics we see this as undesirable and dangerous.”

The RBA’s decision to lower the rate is undoubtedly a decisive move to eliminate escalating unemployment and some commentators have suggested that with the property price bubble likely being the consequence of poor fiscal policy the RBA had little choice but to cut interest rates in the face of poor consumer and business confidence.

The government meanwhile has made comment that the cut was good for ‘home owners and businesses’ and accused the Coalition of ‘shifting the goal posts because rates are now lower under Labor than John Howard’ but the Coalitions’ response suggested that the cut in the cash rate to a record low 2.5 per cent was a sign of an ‘economy in decline’.