(Australian Associated Press)
Australia’s high housing prices and the nation’s rising household debt convinced the Reserve Bank to keep the official cash rate on hold at its recent October meeting.
Minutes of the central bank’s October meeting, released on Tuesday, show that the RBA noted some easing in house prices, most notably in Sydney,
Residential construction appears to have plateaued, the bank said, while public investment is expected to continue supporting non-mining economic activity – which is almost 10 per cent higher than at the start of 2016.
However, challenges to household consumption – slow growth in real wages – remain, with household debt still outpacing the slow growth in household incomes, a key consideration in the board’s decision to keep the cash rate at 1.5 per cent.
Weak income growth and high household indebtedness – amid a low interest rate environment – means that Australian households remain sensitive to any rate hikes, the RBA said.
Consequently household balance sheets remain “a key area of attention for policymakers” the bank board said.
“Household indebtedness remained high and had edged higher in an environment of low interest rates and weak income growth,” the minutes noted.
RBC Capital Markets economist Su-Lin Ong said more recent domestic economic indicators will also be of concern.
“We note that the key domestic data since the October board meeting – another very weak retail sales print for August and July – suggest that the RBA may be underestimating some of these risks,” Ms Ong said.
The bank said credit growth for housing investors, a key risk in the housing market, showed signs of easing – however the overall growth in household credit was little changed.
The Australian Prudential Regulation Authority move in March to limit growth in interest-only home lending, was having the desired effect of limiting the growth of the higher risk lending, the bank said.
However, while borrowing by investors had been growing more slowly, this has been offset by slightly higher growth in borrowing by owner-occupiers.