Due to the housing crisis pushing prices higher, the Australian Reserve Bank is expected to remain idle this week.

It is understood that the Reserve Bank of Australia will hold its interest rate decision on Tuesday. The country's record-high household debt is a key factor in the bank's cautious tightening policy, while housing is currently the "outlier" in the easing cycle this week and is an important consideration in keeping rates unchanged. Housing costs, including rent, account for about one-fifth of the Australian consumption basket, making it the second-largest inflation-driving factor after the service industry. This helps to explain the tough comments made by Reserve Bank of Australia Chair Michele Bullock, and why economists believe the bank will keep the cash rate at its 12-year high of 4.35% on Tuesday and extend it at least until February next year. The Fed launched an easing policy last week, and the message from the Reserve Bank of Australia is clear: it is "too early" to consider lowering rates. Australia's potential inflation rate is 3.9%, well above the 2-3% target, with the central bank not expecting it to return to this range until the end of 2025. GSFM investment strategist Stephen Miller said, "Given that the RBA is not as aggressive as the Fed in raising policy rates to combat inflation, Australia's situation may not be a coincidence. On the other hand, it may need more patience in cutting spending." Several economists, including Westpac Banking and Goldman Sachs, expect that when the Reserve Bank of Australia eventually starts lowering interest rates, it will enter a shallow easing cycle, with its cash rate peak around 1 percentage point lower than the Fed's. As one of the most indebted countries among developed nations, the Reserve Bank of Australia has always been concerned about the extent of austerity that the country's people can bear. However, it has been proven that supply is the main issue, as a surge in post-pandemic immigration and soaring residential construction costs have caused housing shortages. This has led to a spike in rent, exacerbating inflation and causing real estate prices to continue rising during a period of restrictive policies. Government data shows that in July, mortgage lending (excluding refinancing) increased by 3.9% from the previous month, while loans issued to investors soared by 5.4%, a 35.4% increase from the same period last year. Investor loans amounted to AUD 11.7 billion (USD 7.9 billion), nearing the peak in January 2022. Masters Builders CEO Denita Wawn said that since the outbreak of the pandemic, the construction time for new projects has increased by about 20% from approval to completion, with costs rising about 40%, indicating strong housing demand. "The government's top priority should be to increase building and construction labor," Wawn said, calling for an increase in the number of skilled immigrants. "We can't fill this gap domestically." A government report shows that in the 114 industries that make up the Australian economy, residential construction ranks second in economic multiplier effects. Each AUD 1 million of residential construction output can support 9 employment positions, highlighting the importance of the industry. According to AMP's Deputy Chief Economist Diana Mousina, labor and material shortages mean that only 165,000 homes were started in the past 12 months, far below the 250,000 needed to meet demand. Rising input costs and a national housing shortage drove second-quarter annual rental inflation to 7.3%, while house prices in Sydney hit record highs. The danger is that any interest rate cut will further stimulate the real estate market. However, some economists believe that the Reserve Bank of Australia will not wait for the real estate market to cool down before starting to lower rates. James McIntyre of Bloomberg Economics says, "The RBA wants to see a decline in housing costs, but it doesn't necessarily have to wait for it to decline before starting to lower rates. Employment and domestic demand are more critical." The RBA's rate hikes have clearly slowed economic growth, mainly due to weak consumer spending, despite strong population growth and higher government spending helping Australia avoid a recession. Meanwhile, the labor market has unexpectedly remained resilient, with the August unemployment rate staying at 4.2%. Oxford Economics believes that Australia has never truly experienced weak GDP growth and extremely low unemployment rates in modern history. Economist Sean Langcake points out that low productivity and a mismatch of monetary-fiscal policies are among the factors leading to a slow anti-inflation cycle. He expects interest rate cuts to start in the second quarter of next year. Gareth Aird of Australia's largest bank, Commonwealth Bank of Australia, says that as pressures on building inputs and rental prices start to ease, the prospects for housing inflation are slowly improving. Aird says, "By the third quarter of 2024, the stronger-than-expected momentum in inflation slowdown will be a necessary factor for the RBA to start easing this year." "However, the evolution of the unemployment rate will also play a crucial role in the central bank joining global peers in rate-cut action." It is reported that third quarter inflation data will be released on October 30th.