Kohler: Lower rates could fuel a property bubble

The first thing Philip Lowe will have to do as incoming Reserve Bank Governor is to review, and re-express, the bank’s inflation target. The target is 2-3 per cent and is about 24 years old. It was first articulated by then governor Bernie Fraser in a speech in March 1992 and has since become both an article of faith and an explicit target for the RBA. Now, for the first time, the bank has as its long term CPI forecast something other than 2-3 per cent. In Friday’s Statement on Monetary Policy, the inflation forecast for 2017 and 2018 was reduced from 2-3 per cent to 1.5-2.5 per cent. In other words, it has given up. This is a momentous development. In my view, the property market has not been a bubble up to now, but it could easily turn into one with another 0.5 per cent off interest rates. Read the full story: (VIEW LINK)