RBA Concerned About Rising Household Debt

Friday, August 14th, 2015
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A senior Reserve Bank official has highlighted concerns about rising household debt in an indication interest rates may not be cut from current record lows.

RBA deputy governor Philip Lowe said borrowing has increased as house and land prices are driven higher by a rapidly growing population and limited housing supply.

“I think it is difficult to escape the conclusion that household balance sheets are, on average, a little more risky than they once were,” Mr Lowe told an economic function in Perth.

Many households have pulled back on spending as a result, but the RBA is mindful not to spark a spending boom with its interest rate settings, he said, an indication the RBA is unlikely to lower rates and make loans even cheaper.

The cash rate has been at a record low of 2.0 per cent since May.

“Given the position of household balance sheets, it is unlikely to be in our long-term interest for a consumption boom to be financed by a pickup in household borrowing,” he said.

In the longer term, the economy needs greater investment to achieve sustainable growth, Mr Lowe said.

There’s no shortage of ideas for new projects and products, but innovation needs to be encouraged, he said.

Spending on infrastructure, including transport, also needs to rise.

“Done properly, it could help lift the return to other forms of investment in a wide range of industries across the economy,” Mr Lowe said.

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