Today’s decision by the Reserve Bank of Australia (RBA) to leave interest rates unchanged is likely to indicate APRA’s crackdown on the banks (‘APRA to keep banking crackdown secret‘) has not been fully executed. Without these crucial measures in place, the central bank can’t take the risk of further fueling the Sydney and Melbourne property bubbles.
Last month, Reserve Bank statistics indicated household debt in Australia has reached a record high of 153.8 per cent of household disposable income. Barclay’s research shows Australian households now have the highest level of household debt in the Advanced world. Further leveraging at a time when the rest of the Australian economy is slowing, leaves households particularity vulnerable.
Today’s statement on the monetary policy decision included the common paragraph with a few minor changes:
Credit is recording moderate growth overall. Growth in lending to investors in housing assets is stronger than to owner-occupiers, though neither appears to be picking up further at present. [RBA ought to be happy] Lending to businesses, on the other hand, has been strengthening recently. [Another positive..] Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have risen, in part as a result of declining long-term interest rates.
The last sentence could indicate the RBA is sensitive to creating bubbles in other markets from an abnormally low cash setting. Cutting interest rates could/has force some savers to seek out higher yields in the share market, creating new asset bubbles. Equity markets are already fully priced. The RBA raised concern about the commercial property market in last month’s Financial Stability Report (‘Risks increase in Australian commercial property‘.)
» Statement by Glenn Stevens, Governor: Monetary Policy Decision – Reserve Bank of Australia, 7th April 2015.
» Housing bubble compels RBA to hold – Australian Financial Review, 7th April 2015.