RBA flags tighter credit as rates remain on hold

Following its decision to leave the official cash rate on hold for the 22nd month, or 20th meeting, the RBA noted that housing credit growth has slowed over the past year, especially to investors.

“APRA’s supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets, although the level of household debt remains high. While there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline,” the bank said.

AMP Capital chief economist Shane Oliver said that the RBA does not appear to be too fussed by the further fall in Sydney and Melbourne property prices or the further tightening in lending standards now underway.

Mr Oliver said: “It’s doubtful though that the further tightening in lending standards will be offset by a continuing decline in ‘the average mortgage interest rate on outstanding loans’ as the RBA seems to be implying, as the latter is simply occurring as new borrowers have lower rates than borrowers from, say, five years ago, whereas the tightening in lending standards around income and expenses will act to slow the number of new borrowers who can get into the housing market.

“Overall, there was nothing in the RBA’s latest statement to suggest an imminent change in monetary policy.”

AMP Capital remains of the view that the RBA is likely to maintain the interest rate on hold for a long time yet.

“We don’t see a rate hike until 2020 at the earliest. And given the weakness in home prices and the negative wealth effect that will flow from that, it’s premature to rule out the next move in official rates being a cut,” Mr Oliver concluded.

[Related: Record-breaking cash rate cycle continues]