RBA says regulators to maintain serviceability buffers


The RBA has been working with APRA to monitor the housing and lending markets

Reserve Bank of Australia (RBA) governor Philip Lowe has said regulators are looking to maintain lending standards and serviceability buffers at an “appropriate” level.

The RBA board kept the cash rate at its record low of 0.1 per cent at its meeting on Tuesday, in line with its prior stance that it would not raise rates until inflation targets are met and wage growth picks up, which is not expected until 2024.

The last rate movement took place in November, when the RBA slashed it from 0.25 per cent and commenced broad quantitative easing.

Further, the RBA board decided to maintain the 10 basis points target for the April 2024 Australian government bond and to continue on its bond-buying program, purchasing government securities at the rate of $4 billion a week until at least mid-February.

RBA governor Philip Lowe also acknowledged the recent talks around macroprudential controls in his monetary policy decision on Tuesday, after Treasurer Josh Frydenberg last week confirmed he had discussed ways to slow the housing boom with regulators.

The RBA has been working with Australian Prudential Regulation Authority (APRA) for some months now to monitor the housing and lending markets, having discussed what tools they would use if they felt they needed to intervene.

APRA will soon release information setting out how it will use macroprudential controls, after chair Wayne Byres expressed concerns around a rise in high debt-to-income (DTI) lending in the June quarter.

While Dr Lowe has previously said the curbs could include limits on high DTI or loan-to-value ratio (LVR) lending, CBA chief executive Matt Comyn has suggested raising serviceability rates would be the better reform.

During a recent parliamentary hearing, he warned restricting high LVR lending could disproportionately affect first home buyers.

Similarly, NAB chief economist Alan Oster voiced surprise at the mention of a potential DTI lending limit, saying he would think regulators would use increased rate buffers instead.

But, Peter White, managing director of the Finance Brokers Association of Australia (FBAA) stated on Tuesday that lifting serviceability rates could see borrowers become mortgage prisoners, if they aren’t able to refinance.

Any measures to curb the boom must have a clear rationale, otherwise there’s a risk of a housing recession, Mr White said.

He said: So we would oppose higher floor rates if there are no accompanying measures to ensure borrowers can refinance.

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