In his opening statement to the House of Representatives Standing Committee on Economics on Friday (16 February), RBA governor Philip Lowe noted that most households are experiencing only slow growth in their incomes, which is expected to continue for “some time yet”.
“This lowering of expectations about income growth is likely to be affecting spending, especially in an environment of high levels of household debt,” Mr Lowe said.
“A pick-up in income growth, by way of ongoing increases in jobs and stronger wage growth, should help here.”
The RBA governor said that the bank continues to focus on household balance sheets, and believes that there has been some “containment” of the build-up of risk in that area.
“This is a positive development,” Mr Lowe said, noting that lending standards are stricter than they were previously, and there has been a welcome decline in the share of interest-only loans following measures taken by APRA.
"While the Reserve Bank does not target housing prices or household debt, it would be a good outcome if we now experienced a run of years in which the rate of growth of housing costs and debt did not outstrip growth in our incomes in the way that they did over the past five years.”
High levels of household debt have been an important factor in the Reserve Bank’s monetary policy decisions. Mr Lowe said that the RBA board has sought to strike a balance between these benefits of monetary stimulus and the medium-term risks associated with the increase in the already high level of household debt.
“We have sought to steer a middle course, promoting sustainable growth in the economy,” the RBA governor said, adding that it is more likely for rates to go up, rather than down, in the future.
“The timing of any future move will depend upon the extent and pace of progress that we make in reducing the unemployment rate and having inflation return to target.
“As things currently stand, we expect that progress to be steady, but to be only gradual. Given this assessment, the Reserve Bank board does not see a strong case for a near-term adjustment of monetary policy. We will, of course, keep that judgement under review at future meetings.”