RBA keeps interest rates at record low

RESERVE Bank of Australia governor Philip Lowe has hinted regulators will target the adequacy of “loan serviceability buffers” as part of an anticipated crackdown on risky mortgage lending.

In a statement accompanying the RBA board’s decision on Tuesday to hold rates steady at a record low of 0.1 per cent, Dr Lowe noted that financial regulators had been discussing the medium-term risks to macroeconomic stability of rapid credit growth at a time of low interest rates.

“It is important that lending standards are maintained and that loan serviceability buffers are appropriate,” he said.

Previous statements made mention of lending standards, but the October statement was the first to explicitly reference the interest rate buffer – currently set at a mandated minimum of 2.5 percentage points – lenders apply to potential borrowers’ mortgage applications.

Regulators have recently flagged they will move to rein in high-risk borrowing to reduce the risk of a damaging housing market collapse in coming years should borrowing costs move sharply higher.