RBA warns banks to maintain lending standards despite cheap credit

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The RBA has warned banks to maintain their lending standards while record-low interest rates fuel demand for new home loans. 

While leaving the cash rate unchanged, the RBA is wary of the risks associated with cheap credit, especially coming off the back of the global financial crisis a few years ago that was largely caused by bad loans.

Minutes from this week’s RBA board meeting said, “In the current environment of low interest rates and slow credit growth, members agreed that it was especially important that banks maintained prudent lending standards.”

The RBA and banks around the world are working out the best ways to respond to the risks associated with cheap credit. 

RBA meeting minutes mention New Zealand having already moved to introduce tougher laws to reduce banks giving out risky loans. 

HSBC chief economist Paul Bloxham told The Age on Wednesday he predicts further rises in house prices as the effects of the continued interest rate cuts take hold. 

“We are at the early stages of a housing boom,” he said.

“I would not be surprised if house prices pick up to double-digit rates into the early stages of next year.” 

Our news article on the Perry Finance website this week on the growing trend of self-managed super funds highlighted the increasing practice of people borrowing off the back of their super in a SMSF, and the RBA is also keeping a close eye on this activity, concerned that people are taking more risks with their finances. 

There has been a recent spate of SMSF advertisements on television and the internet, and the number of SMSFs has doubled to 500,000 over the past ten years.


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