Invest
Is the RBA creating a housing and equity price bubble?
The RBA has reduced the official cash rate to a new record low, with an economist fearing it could lead to a major asset bubble.

Is the RBA creating a housing and equity price bubble?
The RBA has reduced the official cash rate to a new record low, with an economist fearing it could lead to a major asset bubble.

Following an out-of-cycle rate reduction at the start of lockdowns in March, the RBA has followed market consensus and reduced the official cash rate to 0.10 per cent, down 15 basis points.
BetaShares’ chief economist, David Bassanese, believes the “drastic action” by the Reserve Bank of Australia (RBA) to reduce record-low interest rates and further quantitative easing is a last-ditch effort to hit inflation targets at the risk of a major bubble in housing and equity prices.
“Given the economic outlook has improved, rather than worsened, since the RBA last cut interest rates, it suggests the policy move is not based on new information but rather a major change in policy approach,” Mr Bassanese noted.
“Fear of the impact of persistent low interest rates on the financial system has been jettisoned, as has the fear of creating runaway asset prices.”
He pointed out that the RBA decided to now follow the rest of the world in trying to get the cheapest interest rates as well as aggressively printing money through quantitative easing.
“Spending $100 billion to buy long-term government bonds also won’t do much to lower key local lending rates, which are more sensitive to already rock-bottom short-term rates.
“That said, with interest rates now effectively zero, bond buying is the RBA’s new flexible policy tool. It can and likely will announce even greater bond buying in the months ahead – if only to continue to be seen to be doing something if the economic recovery falters,” Mr Bassanese said.
The economist noted that the RBA has followed its global peers in not only reducing the rate, but promising to keep it lower for longer.
“If, as I suspect, inflation continues to remain stubbornly low even as the economy improves – reflecting ongoing structural factors such as technology and globalisation – it remains to be seen whether an emerging asset bubble ultimately causes the RBA to lift rates well before its inflation target has been achieved.”
“Indeed, perhaps the greatest economic impact of the RBA’s bold new approach will be on asset prices – as the virtual guarantee of persistent low interest rates will push up valuations as investors chase yield and greater leverage,” Mr Bassanese concluded.
About the author

About the author


Property
First home buyers brace for strengthening headwinds
While Australian first home buyers dominated the market in 2020, increasing their market share by 50.4 per cent in the past year, they're likely to face strengthening headwinds as prices soar. ...Read more

Property
Australia’s most popular rental suburbs revealed
Tenants should brace themselves for rental price hikes as tightening vacancy rates continue across the country, new research has revealed. ...Read more

Property
Australian home values rise at fastest rate in 17 years
Overall, Australian home values surged 2.1 per cent higher in February, the largest month-on-month change in CoreLogic’s national home value index since August 2003. ...Read more

Property
Housing finance records continue to tumble
Australian housing loan commitment has reached another record high in January, rising by 10.5 per cent in the last month alone, official figures show. ...Read more

Property
Detailed forecast: How will the capital cities perform in 2021?
With most of the property market finding its footing by the end of 2020, after the COVID-induced disruption, experts have grown optimistic about the future of real estate in a post-pandemic world. ...Read more

Property
‘Allowing super to be used for deposit will jack up house prices’
Capital city prices could soar if the backbenchers’ continued push to enable first home buyers to access their super to fund their home deposit is given the green light, a super lobby group has said...Read more

Property
Poor wage growth could impede home price growth
With wages growth at record-low levels, a property expert has warned that continuing low and flat wages could impede home price growth. ...Read more

Property
Negotiating a lower interest rate on your property loan
The banks are customer hungry, meaning they’re willing to offer increased discounts to new customers and apply these discounts to existing customer loans, a mortgage broker has said. ...Read more

Property
First home buyers brace for strengthening headwinds
While Australian first home buyers dominated the market in 2020, increasing their market share by 50.4 per cent in the past year, they're likely to face strengthening headwinds as prices soar. ...Read more

Property
Australia’s most popular rental suburbs revealed
Tenants should brace themselves for rental price hikes as tightening vacancy rates continue across the country, new research has revealed. ...Read more

Property
Australian home values rise at fastest rate in 17 years
Overall, Australian home values surged 2.1 per cent higher in February, the largest month-on-month change in CoreLogic’s national home value index since August 2003. ...Read more

Property
Housing finance records continue to tumble
Australian housing loan commitment has reached another record high in January, rising by 10.5 per cent in the last month alone, official figures show. ...Read more

Property
Detailed forecast: How will the capital cities perform in 2021?
With most of the property market finding its footing by the end of 2020, after the COVID-induced disruption, experts have grown optimistic about the future of real estate in a post-pandemic world. ...Read more

Property
‘Allowing super to be used for deposit will jack up house prices’
Capital city prices could soar if the backbenchers’ continued push to enable first home buyers to access their super to fund their home deposit is given the green light, a super lobby group has said...Read more

Property
Poor wage growth could impede home price growth
With wages growth at record-low levels, a property expert has warned that continuing low and flat wages could impede home price growth. ...Read more

Property
Negotiating a lower interest rate on your property loan
The banks are customer hungry, meaning they’re willing to offer increased discounts to new customers and apply these discounts to existing customer loans, a mortgage broker has said. ...Read more