The Reserve Bank must raise interest rates next month or in November before the housing market enters a full boom and bust cycle, a QUT economist says.
QUT financial economist, Dr David Willis, warned the property market had already started to enter a bubble, with high clearance rates and inflated prices.
"Leaving rates on hold through the summer will allow the housing market to potentially enter into a full boom, which would need significant monetary policy change to bring it from the boil," he said.
"I am calling a rise in either October or November at the latest, because I think the RBA will realise they need to act before it's too late."
Earlier this month the RBA left the cash rate on hold for the thirteenth consecutive month, keeping it at the historic low of 2.5 per cent which it has sat at since August last year.
The Australian dollar falling to US90c would offer another incentive for the RBA to raise interest rates, Dr Willis said.
"This is an opportunity for the RBA to take advantage of the lower currency to start getting rates back to somewhere near normal before the next recession or crisis hits," he said.
"Higher interest rates would allow the RBA to support the economy again, an ability it is lacking right now. And the lower currency rates will provide significant export opportunities for our soft and hard commodities."
Dr Willis warned lower currency rates would deliver a potential spike in inflation as the cost of imported goods rises in price, but said a rise in interest rates would allow the economy to adjust more slowly.
But an interest rate rise would not be all good news for the State and Federal Governments, as any new government debt would have a higher yield attached to it.
"This means as rates move up towards a more normal rate, the cost of capital for the State and Federal Government rises through 2015 and beyond, and serviceability takes more and more from the tax take," Dr Willis said.
"So they have less to spend on services, unless they increase taxes. If they are serious about debt and deficit they would have to either cut services or increase taxes.
"If they ignore both more bonds will be issued which will lead to a lowering of our credit rating. So either way, there are difficult times ahead."
Media contact:
Rob Kidd, QUT Media, 07 3138 1841, rj.kidd@qut.edu.au
After hours, Rose Trapnell, 0407 585 901
