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Household debt risks ‘no longer building’: RBA

Household debt risks ‘no longer building’: RBA

The “strengthening” of lending standards have helped reduce household debt, according to Reserve Bank governor Philip Lowe.

In his recent address to the Australia-Israel Chamber of Commerce, the RBA chief acknowledged that while household debt continues to climb, he claimed that tightened credit practices have helped alleviate such risks.

Mr Lowe said: “A serious escalation of trade tensions would put the health of the global economy at risk and damage the Australian economy. We also have a lot riding on the Chinese authorities successfully managing the build-up of risk in their financial system.

“Domestically, the high level of household debt remains a source of vulnerability, although the risks in this area are no longer building, following the strengthening of lending standards.”

Mr Lowe also reiterated that the RBA “does not see a strong case for a near-term adjustment to monetary policy”, but he noted that it’s “more likely that the next move in the cash rate will be up”.

The RBA head, however, warned that an interest rate hike could be a “shock” to some Australians.

“The last increase in the cash rate was more than seven years ago, so an increase will come as a shock to some people,” Mr Lowe continued.

“But it is worth remembering that the most likely scenario in which interest rates are increasing is one in which the economy is strengthening and income growth is also picking up.”

Further, in his address, which focused on regional variations in the Australia economy, Mr Lowe highlighted the “dispersion in house prices” across the country.

“The picture is pretty clear: the dispersion in housing prices is currently larger than it has been in a very long time,” the RBA governor said.

“This mostly reflects the big run-up in housing prices in Sydney and Melbourne at a time when price growth in the rest of the country has been subdued.”

The central bank governor also noted an increase in inter-state migration, driven by steep property prices in the eastern seaboard.

“When prices increase a lot in one area, relative to another, some people relocate to where prices are lower, especially if jobs are available,” Mr Lowe said.

“This certainly happened in the late 1990s/early 2000s, when there was a marked pick-up in people moving from New South Wales to Queensland following the big increase in housing prices in Sydney.”

He continued: “It’s too early to tell whether the same type of adjustment will happen this time, but the number of people moving from New South Wales, where housing prices are highest, to Queensland (and, to a lesser extent, Victoria) has begun to pick up.”

Speaking in Perth, Mr Lowe also reflected on the low levels of property investment in Western Australia.

“One area, though, that does remain weak is investment in dwellings, with the level of activity here in the west standing in contrast to the high level of dwelling investment in the eastern states,” the RBA governor noted.

[Related: Household debt levels reach new record high]

Household debt risks ‘no longer building’: RBA
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