Minutes from the Reserve Bank of Australia’s August meeting – at which it decided to leave the cash rate unchanged at 1.5 per cent – reveal the board remains concerned about house price growth and the level of housing debt.
The board noted while there are some signs the property markets in Sydney and Melbourne have eased, growth in these two cities remained strong, while prices in Perth have fallen and apartment price growth in Brisbane has been weak.
“Borrowers investing in residential property had been facing higher interest rates and growth in credit to investors had eased, but overall housing credit growth had continued to outpace the relatively slow growth in household incomes,” the minutes read.
The board said there was a need to balance the risks associated with high household debt in a low-inflation environment.
ANZ head of Australian economics David Plank noted a reference in the July minutes to it being too early to tell whether regulatory measures on housing have had their full effect was absent from the August minutes.
“The Bank seems less confident that house price growth is moderating to a satisfactory degree,” he said.
The Australian Prudential Regulation Authority this year told lenders to limit growth of investor lending by 10 per cent annually and cap growth in higher risk interest-only loans to 30 per cent of new mortgages.
A skilled labour shortage and its knock on effects were another factor that informed the RBA’s decision.
“Information from liaison indicated that some employers were finding it harder to attract workers with particular skills,” the minutes read.
“If this were to broaden, wage growth could increase more quickly than forecast, which would see inflationary pressures also emerge more quickly.”
Underlying inflation was tipped to be close to two per cent in the second half of this year and edge higher over the 2018 and 2019.
The board also noted the Australian dollar had risen to levels not seen since 2015 and if it continued to climb that could dampen economic growth.
“Inflation was still expected to increase gradually as the economy strengthened.
“However, a further appreciation of the exchange rate would be expected to result in a slower pick-up in inflation and economic activity than currently forecast.”