RBA: Macro-prudential by year end

Advertisement
ScreenHunter_4432 Oct. 03 07.43

By Leith van Onselen

Reserve Bank of Australia (RBA) officials appeared before the Senate Committee on affordable housing yesterday and signaled that APRA would likely introduce macro-prudential measures to curb high risk mortgage lending by the end of this year. From The Canberra Times:

“I expect there will be … an announcement before the end of the year,” [Assistant RBA governor Malcolm Edey] said…

Dr Edey was reluctant to detail specific tools that might be used, refusing to “rule anything in or out” and saying it would be determined by APRA.

“The tools we are talking about need to be carefully targeted,” is all Dr Edey would tell the committee.

Dr Edey said that Australia’s financial regulators would not try to kill the investor market with its so-called macro-prudential policy response, just deal with imbalances compared with the rest of the sector…

“We are worried about what the downside of that house price cycle would look like,” [Head of Financial Stability Luci Ellis] said.

Advertisement

The RBA/APRA have already more or less ruled-out following the Reserve Bank of New Zealand’s approach and implementing loan-to-value ratio (LVR) limits. These are perceived by the RBA/APRA as being too blunt and having a particularly detrimental impact on first home buyers, who struggle to raise the necessary 20% deposit.

Instead, it is believed that they are considering raising interest rate buffers in loan affordability calculations from, say, 2% to 3%, to ensure that borrowers can continue to meet their repayments if interest rates were to rise. This is a sound approach, in my view, and preferable to blunt LVR controls.

Overall, it’s nice to see the RBA/APRA finally getting with the program on risky mortgage lending, albeit a year too late.

Advertisement

[email protected]

www.twitter.com/leithvo

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.