RBA keeps interest rates on hold in October meeting
The Reserve Bank of Australia has left policy settings unchanged at its October meeting, while also calling on banks to maintain sound lending practices in light of growing risks in the housing market.
In his post-meeting statement, RBA governor Philip Lowe said regulators were engaged in talks about Australia’s property market, which is still heating up despite a decline in transactions over the lockdown period.
“In this environment, it is important that lending standards are maintained and that loan serviceability buffers are appropriate,” he said.
Recent data from CoreLogic showed monthly growth in housing values eased to 1.5 per cent in September, after peaking at 2.8 per cent in March. In the last 12 months, property values have climbed 20.3 per cent.
The Council of Financial Regulators, which counts senior RBA officials among its members, recently warned that soaring household debt could undermine economic stability if left unchecked.
In a statement issued last week, the CFR expressed concern that “a period of credit growth materially outpacing growth in household income would add to the medium-term risks facing the economy, notwithstanding that lending standards remain sound.”
At the same meeting, it was revealed that APRA is currently discussing possible macroprudential policy responses, after Federal Treasurer Josh Frydenberg gave the regulator the green light to take some of the heat out of the market.
The last time APRA decided to intervene, its targets were investor and interest-only lending.
Its approach this round will be detailed in an upcoming information paper, but the RBA’s comments today could see banks raising their benchmark floor rates, which are the higher rates lenders use when assessing borrowers’ ability to pay off their mortgage.
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With a strong vaccine rollout underway and pathways out of lockdown drawn up for NSW and Victoria, the RBA is confident the economy will rebound after a temporary setback over the September quarter.
“As vaccination rates increase further and restrictions are eased, the economy is expected to bounce back. Many businesses are now planning for the easing of restrictions and confidence has held up reasonably well,” Lowe said.
“In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.”
The Board will maintain its weekly $4 billion bond purchases (currently $3.2 billion of AGS and $0.8 billion of state and local bonds) until at least mid-February next year, at which point the program will be reviewed.
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Read last month's Reserve Bank interest rates update.
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