The crackdown on investor lending –which has seen many lenders increase interest rates and decrease LVRs on loans to investors – may need to be intensified, according to the International Monetary Fund (IMF).
In its concluding statement describing the preliminary findings at the end of an official staff visit to Australia, the IMF said that APRA should intensify its surveillance of investor lending if growth does not slow significantly in the second half of the year.
“APRA has appropriately been taking targeted and gradual action to address areas of risk in the housing market for some time. Banks, however, seem only to have responded more recently and the results are yet to be fully reflected in the lending data,” the IMF said.
“We expect APRA’s approach to succeed, but it may need to be intensified, for example, if investor lending and house price growth do not slow appreciably in the second half of the year.
“Such intensification could include requiring banks with fast-growing investor lending to hold more capital, raising risk weights on investor lending, and restricting the duration of interest-only loans.”
APRA may need to be particularly prudent; given the IMF also said the Reserve Bank should be prepared to drop interest rates further if the wider economy doesn’t pick up.
“A sizeable output gap, elevated unemployment, subdued inflation pressure, and an exchange rate still on the strong side, call for supportive aggregate demand policies.
“While monetary policy is already accommodative and may have lost some effectiveness, it should still stand ready to ease further should the recovery fall short of expectations and provided the financial stability risks remain contained.”