Daily Commentary BY THE CURVE TEAM –

Housing a Focus for RBA

21st of April, 2021

With little change in the buoyant economic recovery, housing credit is clearly becoming more of a focus for the RBA.

The focus seems warranted, given other countries such as Canada and New Zealand have had drastic run ups in prices during covid. In Australia, the last two months of house price rises have been near record highs.

The RBA held the belief that lending standards had not deteriorated. They noted that first home buyers have made up the bulk of new lending, although the latest monthly loan approvals data suggested a shift towards investors.

With the increasing loans usually debt levels would become a concern. But government stimulus and lower interest payments have so far kept leverage in check so household debt has actually reduced.

Nonetheless, the RBA reiterated it would ‘be monitoring trends in housing borrowing and the maintenance of lending standards carefully’. They also referenced a key forecast of theirs.

Despite a roaring economy, the RBA again noted that wages and inflation are expected to stay subdued for some time, which is a key reason for their expectation that the cash rate will not change until at least 2024. Inflation is expected to go above 3% temporarily during the middle of the year, but underlying inflation is expected to remain below 2% over 2021 and 2022.

If inflation were to beat these expectations, just as employment has far ex ceded expectations, then there would be more reason to end Yield Curve control and QE.

Josh Stewart

Associate - Money Markets