The Reserve Bank of Australia says the need to weigh an overheated housing market against a soft labour market is likely to continue for some time.
The minutes of the RBA board’s April meeting, at which the central bank held the cash rate at 1.5 per cent, showed members discussed increased risks in the property market as well as employment figures that continue to disappoint.
“”Although forward-looking indicators of labour demand continued to suggest an increase in employment growth over the period ahead, this had been true for some time without leading to an improvement in labour market conditions,” the minutes said.
The RBA will carefully monitor labour and housing markets over the coming months, the minutes added.
That will include the impact of recent regulatory changes to home loan lending, with the Australian Prudential Regulation Authority last month restricting higher-risk interest-only loans to 30 per cent of each lender’s new mortgages.
The minutes alluded to the impact of negative gearing in the buildup of risks in the housing market, where any cut to the cash rate would make mortgage borrowing even more attractive to investors.
The minutes noted that housing credit growth continues to outpace growth in household incomes.
“Interest-only loans allow investors to take greatest advantage of particular features of the tax system,” the RBA said.
The RBA board noted rising property prices in Sydney and Melbourne – where prices soared by 18.9 and 15.9 per cent respectively in the year to March – but said it will take some time to fully gauge the impact of APRA’s changes.
Commonwealth Bank economist Michael Workman said much now depended on the federal government’s May budget.
The coalition has all but ruled out major changes to negative gearing.
“We believe that the RBA are very reluctant rate cutters,” Mr Workman said.
“The risks in the housing market are attracting plenty of attention and may warrant further adjustments from APRA about lending rules.”