Australia's Housing Downturn Ignored by RBA Amid Rising Supply-Driven Inflation

Australia's housing market is experiencing another downturn, but the Reserve Bank of Australia (RBA) is not expected to respond by cutting interest rates. In fact, markets are pricing in the possibility of further tightening after the bank's next rate hike, which could take the cash rate to a 15-year high of 4.6%.

This unexpected approach has been attributed to the growing influence of supply-driven inflation, which is making it harder for interest rates to have an impact on prices. RBA Governor Michele Bullock described the economy as 'moving into a new world' where traditional tools like monetary policy may not be enough to control inflation.

The bank's stance has been reinforced by Assistant Governor Sarah Hunter, who pointed out that house prices would need to fall by 10% and then remain low for at least one to two years before they have any significant impact on household spending. This suggests that the RBA is willing to let housing market conditions absorb some of the economic slowdown.