RBA holds steady despite soaring demand for property

The Reserve Bank has left the official cash rate on hold at a record low of 0.1% and reiterated they’ll stay there until 2024 ‘at the earliest’ – hosing down speculation it could be forced to move interest rates early to combat rising house prices.

In his statement, RBA Governor Philip Lowe said low interest rates are helping aid the economic recovery and while it’s bouncing back faster than expected, wages and inflation are expected to remain weak “for some years”.

“The current monetary policy settings are continuing to help the economy by keeping financing costs very low, contributing to a lower exchange rate than otherwise, and supporting the supply of credit and household and business balance sheets,” Dr Lowe said.

“Housing credit growth to owner-occupiers has picked up, but investor and business credit growth remain weak,” he added.

Lending standards in focus

Recent data by the Australian Bureau of Statistics showed the value of new home loans hit a new record in January, sitting 52% higher than a year earlier. Strong growth in new lending coupled with forecasts of double-digit price growth has prompted warnings the property market is at risk of overheating.

While the RBA doesn’t target house prices, it does monitor lending standards. If surging property prices cause homebuyers to take on too much debt to secure a property, it could consider measures other than interest rates to help cool the market.

“If there is a deterioration in mortgage quality, a meaningful lift in arrears or runaway price growth we could see the discussion around macroprudential intervention in the market grow louder,” said realestate.com.au Director Economic Research, Cameron Kusher.

Financial regulators were forced to step in during the last housing boom, imposing tougher lending restrictions on the banks.

For now, the RBA doesn’t appear concerned, but will be monitoring the situation.

“Lending standards remain sound and it is important that they remain so in an environment of rising housing prices and low interest rates,” said Dr Lowe.

What it means for lending

The RBA remains committed to keeping interest rates low until inflation reaches its target of between 2-3% and unemployment falls substantially.

That means financial regulators will likely look at other macro-prudential measures, like tighter lending restrictions or clamping down on interest-only loans well before the RBA considers any changes to the official cash rate.