“Developments in the labour and housing markets warranted careful monitoring over coming months,” the RBA noted in the minutes of its board meeting from 4 April.
The RBA kept official interest rates at their record low of 1.5 per cent at that meeting. It was the seventh time in a row the RBA had kept rates on hold.
Noting that regulators had started cracking down on riskier bank lending, the RBA said it would not have an immediate impact.
“Recently announced supervisory measures were designed to help mitigate these risks by reinforcing prudent lending standards and ensuring that loan serviceability was appropriate for current conditions,” the RBA said.
“Less reliance on interest-only housing loans was also expected to increase the resilience of household balance sheets.
“However, it would take some time to assess fully the effects of the recent pricing changes and the increased supervisory attention.”
So high is the risk that it noted the Council of Financial Regulators “would consider further measures if needed.”
The RBA also noted that risks in the housing market seemed to be growing.
“Growth in housing credit continued to outpace growth in household incomes, suggesting that the risks associated with the housing market and household balance sheets had been rising,” the RBA said.
The minutes come after the RBA’s semi-annual Financial Stability Review, which warned last week that rising household debt and escalating property prices in Sydney and Melbourne are creating “heightened risks” and that one third of borrowers who would typically be on lower incomes would have “either no accrued buffer or a buffer of less than one month’s repayments”.
The RBA in its minutes also singled out certain features of the tax system that were encouraging people to load up on debt.
“In particular, interest-only loans allow investors to take greatest advantage of particular features of the tax system, while the availability of offset accounts provides some owner-occupiers with opportunities to manage liquidity risks that might be associated with irregular income, for example,” it said.
The RBA also noted in its minutes that the jobs market was subdued.
“Although forward-looking indicators of labour demand continued to suggest an increase in employment growth over the period ahead, this has been true for some time without leading to an improvement in labour market conditions,” the RBA said.