(Bloomberg) – The relentless surge in house prices in Australia – rising hundreds of dollars a day in Sydney and Melbourne – is fueling momentum for macroprudential measures to contain credit growth and limit growing financial risks.
The official record interest rates, which Reserve Bank of Australia Governor Philip Lowe is expected to keep at 0.1% at the October 5 meeting, are behind the gains. While Lowe reduced weekly bond purchases to AU $ 4 billion ($ 2.9 billion) last month, the RBA has consistently said it does not plan to raise interest rates until 2024. as soon as possible.
This leaves tighter lending rules as the only way to dampen the real estate market, which is increasingly unaffordable for regular workers in large cities. Citing concerns about financial stability, the International Monetary Fund last week called for lending restrictions to bring searing prices under control.
The central bank has said it is constantly evaluating the tools, but has held back so far as it has focused on supporting the economy with the coronavirus leaving much of the east coast densely populated with population in lockdown. The government, which is due to go to the polls by May, also apparently wants measures on house prices.
“They seem to be focusing on high debt-to-income ratio loans,” said Felicity Emmett, senior economist at Australia & New Zealand Banking Group Ltd. in Sydney. “Overall, it’s more likely to happen before the end of the year.”
Housing is roaring in response to ultra-low rates, a phenomenon seen in the developed world as central banks relax policies to support economies during the pandemic. Prices in Australia have risen at more than 10 times the pace of wages, posing a major barrier to entry for first-time homebuyers.
The rapid gains in house prices in Sydney and Melbourne come despite prolonged lockdowns, and as rising household debt raises financial stability concerns. Unlike South Korea and as the New Zealand central bank appears to be doing at its October 6 meeting, the RBA has ruled out a tightening policy aimed at cooling asset prices, focusing instead on the surge in asset prices. the economy towards full employment.
The RBA does not directly control macroprudential tools. On the contrary, they fall under the competence of the banking regulator, which is in regular discussion with the central bank. The Australian Prudential Regulation Authority plans to publish a backgrounder on its framework for implementing macroprudential policy in the coming weeks.
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