The Council of Financial Regulators has turned its attention to lending standards, as it seeks to ensure that the current growth in equity and residential property prices does not turn into a speculative boom fuelled by loose lending.
Reserve Bank governor Philip Lowe said he was not concerned about the recent growth in the value of these assets, which he said was part of the “transmission mechanism” of fiscal and monetary stimulus.
Speaking at the Australian Financial Review Business Summit yesterday, Lowe said: “Low rates push up asset prices. But it would concern me if lending standards deteriorated. It would be a big problem if it was a debt-funded speculative boom in asset values.”
“That is why the CFR is paying close attention to lending standards.”
Lowe said that at the moment lenders and borrowers were acting responsibly but if problems of that kind did emerge, the response would not need to be an increase in interest rates.
“There are various tools, other than higher interest rates, to address these concerns, leaving monetary policy to maintain its strong focus on the recovery in the economy, jobs and wages.”
Lowe reiterated earlier statements that he did not expect to see economic conditions that would necessitate higher rates for several years.
The RBA will maintain current monetary policy settings until inflation is sustainably within the 2 to 3 per cent range.
“Over the past couple of weeks market pricing has implied an expectation of possible increases in the cash rate as early as late next year and then again in 2023. This is not an expectation that we share.
“Our judgment is that we are unlikely to see wages growth consistent with the inflation target before 2024. This is the basis for our assessment that the cash rate is very likely to remain at its current level until at least 2024.”
Lowe said it is understandable that bond yields would move off historic lows as the global economic outlook improves.
“This suggests that investors have more confidence that policy measures are working to stimulate the global economy and that the recovery will be strong enough to generate inflation close to target.
“Inflation expectations have risen but it is about a return to target, not a breakout. I am perplexed by that story.”