Stevens questions rise in household debt

The extent to which further increases in household leverage should be encouraged "is not easily answered, but nor can it be conveniently side-stepped," Glenn Stevens, governor of the Reserve Bank of Australia, said in a speech in New York on Monday night.

"Saving by households, which rose when the terms of trade rose, is tending to decline as the terms of trade fall," Stevens noted.

He said: "This is a natural response to lower income growth and is being reinforced by easier monetary policy, which has reduced the return on safe financial assets.

"That said, the fact that many households already carry a considerable debt burden means that the extent to which they will be prepared to reduce saving to fund consumption may be less than it once was. "

Stevens also considered housing prices, which, he said "at a national level, have already risen considerably from their previous lows, at a time when income growth has been slowing.

"Popular commentary is, in my opinion, too focused on Sydney prices and pays too little attention to the more disparate trends among the other 80 per cent of Australia.

"That said, it is hard to escape the conclusion that Sydney prices - up by a third since 2012 - look rather exuberant. Credit conditions are only one of several factors at work here.

"But credit conditions are very easy. So while the conduct of monetary policy can't allow these financial considerations to dominate the 'real economy' ones completely, nor can it simply ignore them. A balance has to be found.

The RBA governor also mentioned "the attention being given by APRA and ASIC to risks in the housing market.

"At this stage, it is still too early to judge them. We can only say that over the past few months, the rate of growth of credit for housing has not picked up further."