Besides the usual focus on interest rates, financial markets and global economics, yesterday’s RBA minutes shone a light on why the RBA has not closed the door on more interest rate cuts, but it is a reluctant cutter.
It is worried about housing and bank lending.
In the current environment of low interest rates and slow credit growth, members agreed that it was especially important that banks maintained prudent lending standards.
In the slow credit growth (that’s what economists call debt) environment we have in Australia at present, the RBA is worried that banks are dropping their standards to keep mortgage lending volume flowing through the pipe.
That’s why the RBA explicitly called out lending to self-managed super funds for comment saying,
Property gearing in self-managed superannuation funds was one area identified where households could be starting to take some risk with their finances; members noted that this development would be closely monitored by Bank staff in the period ahead.
They also noted the recent Macroprudential moves by the RBNZ to restrict lending on high loan to valuation ratios in the minutes, which is also very important.
As today’s chart shows in seasonal adjusted terms, lending for housing each month is getting back to levels not seen since the stimulus-induced spike in 2009 and pre-GFC levels of 2007-2008. That’s when the RBA pushed rates substantially higher to choke off demand.
Australian Bankers – you have been warned.
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