Australian household debt levels remain a concern, says RBA governor

By Stuart Condie

SYDNEY – Australian regulators may have to tighten mortgage service standards further if household debt growth continues to outpace wage growth, the Reserve Bank of Australia governor has said.

The RBA has previously flagged the risk of excessive borrowing due to low interest rates and rising house prices, and the country’s prudential regulator last month raised the minimum interest rate banks must use. to assess the ability of applicants to repay their loans.

The Australian Prudential Regulation Authority in October raised the cushion to 3.0 percentage points above the product’s lending rate, from 2.5 percentage points previously. RBA Governor Philip Lowe welcomed the move on Tuesday, but said more could be done to prevent households from becoming overburdened.

“We are accumulating medium-term risks in a world where household debt increases by 10% per year and income increases by 4 or 5 [percent]. It’s problematic, ”Mr. Lowe said.

The central bank anticipates annual wage growth of 2.25% by the end of 2021, then rising to 3% by the end of 2023. The central scenario of the RBA remains an increase in the cash rate compared to its current all-time high of 0.1% from 2024, but Mr Lowe has warned that higher borrowing costs are on the way regardless.

“What the Reserve Bank is trying to do is bring us back to full employment, inflation to around 2.5% and interest rates to normalize,” Mr. Lowe said. “We are in no rush and we are patient, but if we are successful, interest rates will rise.”

Write to Stuart Condie at [email protected]

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