Household debt fears ease as RBA holds rate

THE Reserve Bank of Australia’s concerns about high levels of household debt appear to have mellowed following its stern warning to lenders and a tightening of mortgage loan rules.

The RBA held the cash rate steady for a ninth consecutive month at its May board meeting, as expected, leaving the rate at 1.5 per cent.

The central bank’s concerns about rising household debt destabilising the financial system prompted a warning from RBA governor Philip Lowe in April about the prevalence of interestonly loans, and the small buffer against financial shocks that many borrowers hold.

His statement yesterday featured a different tone, amid evidence that efforts by the Australian Prudential Regulation Authority to cap interest- only lending and more prudent measures from the banks, are working.

The RBA noted headline inflation of 2.1 per cent in the year to March 31, back within the central bank’s 2 to 3 per cent target band for the first time in more than two years.

The bank also maintained its forecast of economic growth increasing gradually to above 3 per cent in next few years.

However in his statement Dr Lowe added that labour market conditions remained mixed, with unemployment creeping higher and wages growth expected to remain slow as the jobless rate gradually declines.