Central Bank Views

RBA Minutes Highlighted Concerns over Household Debts, Rising Housing Bubble


At the RBA minutes for the March meeting, policymakers raised concerns over the increasing levels of household debts which would be exacerbated by rising unemployment and falling consumption. The members also noted there had been a "buildup of risks associated with the housing market". While the central bank has been paying close attention to the housing market, including prices, supply, rents, debts and supervisory markets, the reference of "a buildup of risks" was non-existent in the March meeting statement and the February minutes. On the economic growth outlook, RBA acknowledged that the domestic economy continued to move away from mining investment while terms of trade increased in recent months. Moreover, the members expected that inflation would continue to rise, albeit gradually. Policymakers reiterated that economic growth would be supported by low interest rates.

The RBA has turned more vigilant over the housing market bubble. The minutes suggested that "there had been a build-up of risks associated with the housing market". It added that "in the eastern capital cities, a considerable additional supply of apartments was scheduled to come on stream over the next few years". Moreover, "growth in rents had been the slowest for two decades. Borrowing for housing by investors had picked up over recent months and growth in household debt had been faster than that in household income. Supervisory measures had contributed to some strengthening of lending standards". Indeed, Treasurer Scott Morrison warned yesterday that "there remain pressures that have built up again over the last few months". He and the chief corporate regulator have indicated that measures to further crack down property investor loans would be implemented. According to Morrison, "Australia has a very high proportion of interest only loans and these are issues that have been the topic of discussion".

The RBA highlighted that "spare capacity remained and there continued to be significant differences in labour market outcomes across the country". Moroever, "domestic wage pressures remained subdued and household income growth had been low, which, if it were to persist, would have implications for consumption growth and the risks posed by the level of household debt". In the longer term, the members expected spare capacity to "decline slowly" while wage growth and underlying inflation would "rise, but only gradually".

Regarding the stance to leave the cash rate unchanged at 1.5%, the minutes noted "the board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time".