Lenders and policy makers are being urged not to ‘try and engineer’ a revival in credit growth in order to change the course of economic slow-down connected to the decline in mining investment, RBA governor, Glenn Stevens, said in a speech in Sydney yesterday.
Stevens recounted the passing of the ‘two booms’ - mining investment and credit - noting, among other issues, that the value of non-financial assets in particular – mainly dwellings – is lower today in real per-person terms than it was five years ago.
"It would seem unlikely that we could bank on a resumption of sustained growth in assets, in real per-person terms, of 7% per year over the next few years…It follows that the saving rate is unlikely, any time soon, to decline back to where it was in 2005.
"While current saving rates have been described as 'high', a look at longer-run history suggests that 'normal' would be a better description," he said.
“…We should not expect a return to the sort of growth seen in the 1995 to 2007 period. Nor should we try to engineer one, at least on the back of borrowing."
Stevens says households continue to service their borrowings well, with the household arrears rate currently at a low point, but warns that we would be ‘risking future problems’ should we see a ‘big run-up’ in debt from now.
"This does not preclude prudent levels of borrowing by new entrants to the housing market, or by investors."
“At least some of the conditions are in place for stronger trends in dwelling investment and, in time, non-resources business capital expenditure. And exports of resources will continue to pick up strongly.”
According to Stevens, the ‘credible and sensible’ approach to fiscal policies is:
to keep our eyes on the main objectives;
to preserve sound frameworks;
to act consistently with these frameworks and in ways that support confidence; and,
to keep looking for ways to enhance the flexibility the economy itself has demonstrated in adjusting to the shocks of recent years.