RBA hints that interest rates may drop even further

December 04, 2014
Bob Korver

It's hard to imagine isn't it!
Notwithstanding interest rates being at record lows, last week the RBA conceded that low interest rates were sufficiently stimulating economic activity and in need a reduction in the cash rate could provide even greater stimulus. With market consensus that the current cash rate will remain in place until at least mid next year, The Deputy Governor Dr. Philip Lowe, made a number of very illuminating comments last week when dismissing talk of a housing bubble:


"We wanted the higher housing prices to make it more attractive for people to undertake new construction, and by and large that's happening," he said.

"The issue is whether that process is going too far," he said.

"Our judgment so far is that what's happened there is broadly okay.

"The issue we've focused on is the increased investor loans, in particular investor loans that are interest only. Our sense is that as a whole, those portfolios have become a little more risky."

My take - the RBA is very comfortable with the present level of housing demand and dwelling prices particularly given the latter is beginning to cool. Investor lending is clearly on their radar and I think we can expect APRA to move before Christmas to try and cool down. From the comments above, they may move to instruct lenders to pullback interest only periods. Stay tuned.  

Posted in: Interest rates

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