Rather surprisingly, despite weak retail trade growth, record low wages growth and overall sluggishness in the economy, some economists have begun to call for the Reserve Bank to raise rates. It’s a bit odd to be wanting interest rates to move back to normal before key parts of the economy do the same. This is especially curious given the latest housing finance figures show that measures put in place to allow the bank to keep rates at record lows while also limiting risky borrowing are working.

It has now been seven years since we last experienced a rate rise. In November 2010, when the RBA last increased the cash rate, then prime minister Julia Gillard was still a few months away from announcing a deal to put a price on carbon, Australians had just spent the weekend watching The Social Network in the cinema, we were listening to Bruno Mars’s latest, Just the Way You Are, and England was about to beat a Ricky Ponting-led Australia in the 2010-11 Ashes series.

This seven-year run without a rate rise is unprecedented in the RBA history. Since it began independently setting interest rates, the longest it has gone in between rate raises is the 59 months from December 1994 to November 1999. We broke that record in October 2015 and have kept going for another 25 months – with more likely on the way, given the market rates the chance of a rate rise in December at 0%.

And yet there’s talk that the RBA should start raising rates, mostly because of a belief that low rates begin to distort the economy due to easy credit and poor loans that can lead to bad times ahead.

Certainly the low rates over the past seven years spurred an increase in housing loans – especially on the investor side.

In 2013 the value of housing finance for investors was growing annually by 45%.

But more recently it has dropped sharply. In September this year the value of investor housing finance was actually lower than 12 months earlier:

The main reason has been the introduction of “macro-prudential tools”. These are essentially limits set by the bank regulator, the Australian Prudential Regulation Authority, on banks’ ability to lend in certain types of loans. In December 2014, Apra first moved to limit the growth of credit to investors to below 10% – a move that has worked well:

Then in March this year Apra took aim at investor-only loans – calling for them to make up no more than 30% of new mortgage loans.

Interest-only loans are inherently more risky as they are more geared towards house price speculation.

And again, this has had success. In last Friday’s Statement on Monetary Policy, the RBA noted that “the share of housing loan approvals with interest-only payments has declined sharply”. Whereas in 2016 roughly 35% of new mortgage loans were interest-only, now it is down to 20%.

The big drop has come on the investor side of things, which has fallen from over 60% of loans to now around 35%.

Best of all, this should see a continuing moderation of house prices.

Over the next six months house price growth should begin to abate as it follows the slowing growth of housing finance:

And yet, far from being a reason why interest rates should now be lifted, these macro-prudential policies are in place to allow interest rates to remain low.

The main problem with low interest rates is that they can help stimulate an economy, but they also can lead to surging house prices and financial instability.

Macro-prudential tools in effect allow the RBA to keep rates lower than otherwise would be expected because they limit the ability of investors to take advantage of the low rates through speculation – i.e. they limit the instability of the low rates.

And it is clear that we need interest rates to stay where they are because it is also clear that inflation of both prices and wages remains utterly dormant.

In its statement on monetary policy the RBA noted that while employment is doing well, wages are not following suit. The bank speculates that this might be because the sections of the labour market that are doing well are lower-paying jobs.

The bank also notes that while some employers are reporting difficulties in finding enough labour, “at the same time, wage growth in newly negotiated enterprise agreements has declined”.

In the June quarter the average wage growth in enterprise agreements was 2.6% – the lowest recorded since the 1990s recession:

And while Wednesday’s wage price index data should show a bit of a bump due to the increase in the minimum wage, overall the picture looks set to be bleak.

The RBA also noted that the experience in other countries with similar improving employment is one of wages remaining low due to “structural factors such as technological change and globalisation.” It also notes that this “could continue to do so for some time yet”.

So should we really be raising interest rates at a time when the RBA notes that if “households start viewing lower income growth as being more persistent, consumption growth could be somewhat lower than forecast”?

Given the RBA also argues that “weaker-than-expected growth in housing prices or changes in expectations about the likely path of interest rates could also lead to weaker consumption growth than is currently forecast”, it seems unlikely that the RBA is about to hit the rate rise button any time soon.

Right now the market expectation which the RBA is factoring into its forecasts is that the cash rate will rise to 1.75% at the end of next year or possibly early 2019.

The RBA certainly is doing nothing to dissuade anyone from that view.

And while some economists think targeting inflation alone can lead to bad outcomes, if we take the broader view of looking at nominal GDP growth, we can see the economy remains well below par.

Ideally, our economy should grow between 2.75% and 3.25% each year, and our inflation target is 2% to 3%. If we combine those two measures we get an adjusted nominal GDP growth target of between 4.75% and 6.25%. Currently it is running at 4% – and has not been within the target range for nearly three years:

The slowing of housing finance growth and moderating house prices show that the tools instituted to put limits on risky, speculative lending are having an impact. But while the overall economy continues to grow sluggishly, with wages growing at record lows and retail spending following suit, there is little cause for the Reserve Bank to raise rates.