RBA Wants Banks To Limit Loans Even As Interest Falls

The Reserve Bank of Australia urged the nation’s lenders to maintain loan standards as record-low interest rates spur households’ investment appetite.

“There are some signs that households are taking on more risk in their investment decisions,” the RBA said in its semiannual financial stability review released in Sydney today. It is important that banks “do not respond to pressures to boost revenue by imprudently loosening their lending standards, or by making ill-considered moves into new markets or products.”

The RBA has lowered borrowing costs by 2.25 percentage points in an almost two-year easing cycle to a record low of 2.5 percent, to help offset the drag on the economy from a high currency and boost industries including construction as mining investment wanes. The rate reductions have fueled the property market, with prices in Sydney, the nation’s biggest city, jumping 8.3 percent so far this year.

“It is important that those purchasing property do so with realistic expectations of future dwelling price growth,” the central bank said. “The potential for a further increase in property gearing in self-managed superannuation funds, SMSFs, is a development that will be monitored closely by authorities for its implications both for risks to financial stability and consumer protection.”

Bloomberg

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