RBA governor Glenn Stevens yesterday backed so-called macro-prudential rules which enact limits on certain types of home loan lending, telling an audience in Melbourne that the idea was “sound and sensible” and that there was “not much downside” to the moves.
Investment finance is growing at double-digit rates, it’s nearly half the flow of new approvals.
A lot of this is interest-only lending in an environment of rising house prices, especially in Sydney and Melbourne. I think it is perfectly sound and sensible to ask ourselves whether we might at least lean on that a bit. I see not much downside in doing so.
The worst that could happen is that it doesn’t have that big an effect, but if it has some and that helps us to square in some small way all the conflicting things that are going on, that is worth a try.
But The Australian reports this morning Australian Bankers Association chief executive Steven Munchenberg said that macro-prudential rules were blunt instruments which will lead to unintended consequences.
Banks are just doing their job, Munchenberg told The Australian:
We are meeting demand. If people don’t want us to meet that demand there is a case for macro-prudential regulation but if you are not meeting demand there are people that are missing out on getting into the property market
Some economists say supply creates its own demand which, it would seem, is the point of the macro-prudential rules.
Whatever the objections of the big banks and their lobbyists, it seems the RBA and APRA are going to push ahead with the experiment.
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