The Reserve Bank has said a further cut to the cash rate is likely, despite the risks in the housing and mortgage market.
In the minutes of the March monetary policy board meeting, the central bank noted that risks “continued to be centred on housing and mortgage markets”, admitting that the recent decline in interest rates could further boost prices, particularly in the commercial market.
“…[R]isks had been beginning to build in commercial property markets, including developers of residential as well as non-residential property. Prices in several market segments had been rising, even as vacancy rates remained high and leasing conditions weakened,” members noted.
The Reserve Bank also expressed concerns over the residential sector, particularly in regards to the effects of historically low interest rates on investor lending.
“The composition of these markets remained skewed to investor activity, especially in Sydney,” members noted. Growth in credit for housing investors was noticeably faster than owner-occupier credit, at over 10% measured on the same basis.
In December, APRA announced measures designed to temper the housing market risks faced both by households and lenders, although the Reserve Bank minutes also noted that “these risks also needed to be placed in the context of the prevailing low levels of household stress”.
But despite the Reserve Bank’s concern over the risks mounting in the housing and mortgage market, members noted that another cut to the cash rate is likely in the future to boost economic growth and decrease the Australian dollar.
“Nonetheless, on the basis of the current forecasts for growth and inflation, members were of the view that a case to ease monetary policy further might emerge.”