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Free AccessREPEAT:MNI RBA STATE OF PLAY:H'Hold Debt Worry to Keep on Hold
Repeats Story Initially Transmitted at 00:50 GMT Oct 13/20:50 EST Oct 12
--RBA Says Household Borrowing Trends Remain Core Area of Focus
By Sophia Rodrigues
SYDNEY (MNI) - Trends in household borrowing remain a key area of concern
to the Reserve Bank of Australia and will continue to play a major role in its
monetary policy decisions, reinforcing the case for the cash rate to be left on
hold for longer.
In the bi-annual Financial Stability Review, published Friday, the RBA
didn't indicate if risks to the financial systems have increased or diminished
over the last six months, but the continued focus on the condition of household
balance sheets and the housing market suggests those remain areas of concern.
"Household balance sheets and the housing market remain a core area of
interest," the RBA said, even as it acknowledged that measures by Australian
Prudential Regulation Authority (APRA) earlier this year have resulted in "some
moderation in housing market conditions."
The review indicates the RBA's main worry is the impact highly indebted
households could have on the economy's growth prospects before it could impact
the financial system.
The RBA said household debt, which consists mainly of mortgage borrowing,
is high and gradually rising against a backdrop of low interest rates and weak
income growth.
While a rise in interest rates could prevent further growth in such
borrowing, the RBA is also alert to the risk that higher interest rates could
make some households more vulnerable. This could potentially cause them to
reduce their spending, which would hurt the economy.
"Higher interest rates, or falls in income, could see some highly indebted
households struggle to service their debt and so curtail their spending," the
RBA said.
The RBA noted that there has been significant moderation in investor credit
growth across all states after the APRA's steps, which included a 10% benchmark
investor lending and a cap on interest-only loans.
While this should help make household balance sheets more resilient, the
RBA also pointed to the risk that it would constrain some type of potential
borrowers. The impact would be mainly affect financing for apartments and those
who would struggle with higher repayments.
The review contained several concerns about the apartment market given the
substantial pipeline of supply, though the main concern remained the Brisbane
market. Overall, housing market conditions varied across the country but there
are signs of easing mainly in Sydney and Melbourne, the RBA said.
Nationally, apartment prices have continued to record weaker price growth
than detached housing, the RBA said.
Conditions are relatively weak in the Brisbane apartment market, with a
large increase in supply reflected in a decline in prices and rents, the RBA
said. But there are few signs of significant settlement difficulties to date, it
added.
Another worry related to the apartment market is a tightening in
developers' access to bank finance, which has pushed them to more expensive
non-bank lenders
The RBA also noted that in Perth, builders and developers face weak demand
for new dwellings and this has resulted in several small- to medium-sized
builders filing for bankruptcy. This is also evident in Brisbane and more
failures could be expected, the RBA said.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.