Reserve Bank Holds Interest Rate At 1.5% And Warns Of Debt In Housing Market

The Reserve Bank has held its benchmark interest rate at 1.5% while voicing concern over debt levels in Australia’s housing market.

The RBA says maintaining rates at their current level is supported by positive business confidence levels and indicators of growth in employment, despite an increase in the jobless rate and modest growth in jobs numbers.

On housing the RBA says borrowing continues to outpace household incomes, and while recent regulatory changes should address “risks associated with high and rising levels of indebtedness”, the bank said less reliance on interest-only mortgages “would also be a positive development”.

Tim Lawless from CoreLogic said the RBA was stuck “between a rock and hard place” on interest rates.

“They aren’t likely to push rates higher just to quell housing market exuberance; doing so could push inflation lower and the Australian dollar higher as well as cancel out some of the much-needed stimulus that many sectors of the economy are benefitting from.

“On the other hand, the RBA would be loath to push rates lower out of concern for adding further fuel to an already overheated housing market.

“With the cash rate likely to remain on hold, at least for the remainder of the year, it’s looking increasingly like other factors will be necessary to … bring about a housing market slowdown.”

Lawless said a combination of higher mortgage rates, as well as firmer policy settings from the Australian Prudential Regulation Authority around investment lending, more scrutiny from Asic on lending behaviour as well as market-driven factors, such as record low rental yields and affordability constraints, should gradually contribute to slower housing market conditions.

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