RBA Bullock: Continually Assessing If Need To Consider Macro-Prudential Tools
- Published on
- 22 Sep 2021, 12:12 PM
-Continually assessing if need to consider macro-prudential to deal with macro-financial risks
-Tools addressing serviceability of loans, credit amt more likely to be relevant
-Watching developments in housing markets and credit “very closely”
-Hard to judge in real time whether housing price out of line with fundamentals
-APRA, RBA monitoring rise in lending at high debt to income ratios since early 2020
-Share of new lending at high loan to valuation ratios rose last year
By Sophia Rodrigues
(Sydney, September 22, 2021)—The Reserve Bank of Australia is watching developments in housing market and credit very closely, and continually assessing if there is a need to consider macro-prudential tools to address emerging macro-financial risks, a senior RBA official said Wednesday.
“A high level of debt could pose risks to the economy in the event of a shock to household incomes or a sharp decline in housing prices,” the RBA’s Assistant Governor for financial system Michele Bullock said in a speech at a Bloomberg event. The title of the speech was, “The Housing Market and Financial Stability.”
“It is these macro-financial risks that warrant close watching. Whether or not there is need to consider macro-prudential tools to address these risks is something we are continually assessing,” Bullock said.
On Tuesday, CB-Intel published an analysis suggesting possibility that Australia could deploy at least one macro-prudential tool this month.
Bullock said the nature of risks this time meant the likely macro-prudential tools should be one that would be targeted at the risks arising from highly indebted borrowers.
“Tools that address serviceability of loans and the amount of credit that can be obtained by individual borrowers are more likely to be relevant,” she said, adding, such tools have been used overseas and Australia could employ it if circumstances warrant.
In the speech, Bullock said the strong recovery in the housing market is a part of the bridge that helped support the Australian economy’s recovery from the pandemic but the rise in housing prices and household debt means risks to financial stability could be building.
Bullock said the evidence so far suggest lending standards have been maintained but lending to high debt to income ratios have risen since early 2020. The share of new lending at high loan to valuation ratios rose last year and these trends are being monitored by the RBA and the Australian Prudential Regulation Authority.
Bullock’s speech was mostly focused on the rise in household debt caused by strength in housing market which is in line with Governor Philip Lowe’s comments in recent months.
On housing prices, Bullock said sharp rises that are not associated with fundamentals could lead to instability by raising the risks of a subsequent decline but added that “it is hard to judge in real time whether housing prices are out of line with fundamentals.”
“Nevertheless, when prices are rising very rapidly and there are expectations that this will continue, borrowers are more likely to overstretch their financial capacity in order to purchase property,” she said. “We are therefore watching developments in housing markets and credit very closely.”