RBA flags risks to stability

RISKS to financial stability from the housing market may be growing, the Reserve Bank warns.

“If there were a need” for macroprudential tools to address rising risks from the housing market, they should focus on limits to loan serviceability and total borrowing capacity, the central bank said.

In a speech on the housing market and financial stability, RBA Assistant Governor Michelle Bullock (inset) said the unprecedented monetary and fiscal support to the Australian economy through the pandemic had helped “build a bridge” and the strong recovery in the housing market was part of that.

“But with the increase in housing prices and housing debt, risks to financial stability could be building,” she said.

“Even though the banks have strong balance sheets and lending standards are being maintained, there is a risk that in this environment, households will become increasingly indebted.

“A high level of debt could pose risks to the economy in the event of a shock to household incomes or a sharp decline in housing prices. It is these macro-financial risks that warrant close watching.”

The RBA is “continually assessing” whether macro-prudential tools are needed.

The tools should be “targeted at the risks arising from highly indebted borrowers,” Ms Bullock said.