Australia’s central bank saw growing risks in the nation’s hot housing market when it left rates steady earlier this month, underlining the case against further easing in policy.
Minutes of its March meeting showed the Reserve Bank of Australia (RBA) was generally optimistic about the economy as it transitioned away from a decade long boom in mining investment.
However, board members felt there had been a “build-up of risks” in the housing market as borrowing for investment fueled brisk price rises in Sydney and Melbourne.
Home prices accelerated at an annual pace of 11.7 percent in February, with Sydney running red-hot at 18.4 percent, data from property consultant CoreLogic showed.
Governor Philip Lowe has repeatedly argued that cutting rates further could encourage a renewed borrowing binge by households who are already heavily indebted, outweighing any economic benefits.
With wages growing at record lows, debt was outpacing incomes and threatening to weigh on consumer spending.
Data out recently showed retail sales grew at a tepid pace for a third straight month while the outlook for capital expenditure remained uninspiring.
The RBA noted tighter supervision had contributed to “some” strengthening in lending standard by the banks, which has also been raising rates on some mortgage products recently.
Analysts suspect even stricter standards are likely to be imposed by regulators in coming weeks.
Housing affordability, or the lack of it, has become a hot-button issue for the conservative government of Malcolm Turnbull which has promised measures to ease the problem in its May budget.
The RBA’s angst over housing has convinced financial markets there will be no more cuts in interest rates, already at all time lows of 1.5 percent.
A strong revival in the price of iron ore – Australia’s top export earner – led by a pick-up in global growth has also boosted the RBA’s confidence in the outlook.
Rising commodity prices and a home building boom has led Australia’s A$1.7 trillion economy to expand by 2.4 percent in 2016.
The central bank repeated its warning that a rise in the Australian dollar could complicate the outlook, just as the currency broke above $0.7700 overnight.
It was also unsure about the health of the labor market with weakness in measures of wages and a skew to part time work suggesting there was more slack than the jobless rate would seem to imply.