“The economic recovery in Australia is stronger than earlier expected and is forecast to continue. The outlook for investment has improved and household and business balance sheets are generally in good shape,” he said.
Dr Lowe said one unknown fact continued to be the closure of the nation’s borders. While the limit on new arrivals was putting upward pressure on wages it was holding back businesses who needed skilled labour for their investment plans.
A growing concern is the lift in house prices across the nation’s capital cities. The median house value in Sydney alone has climbed by more than 18 per cent so far this year, while household debt is growing faster than incomes.
The governor said the bank was focusing more on the events playing out at the nation’s Saturday housing auctions.
“Housing markets have continued to strengthen, with prices rising in all major markets. Housing credit growth has picked up, with strong demand from owner-occupiers, including first-home buyers,” he said.
“There has also been increased borrowing by investors. Given the environment of rising housing prices and low interest rates, the bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”
He revealed the bank is actively considering options to take the heat out of the housing market, including new interest rate buffers where borrowers are assessed against higher repayment levels, as well as limits on loan to value ratios and debt to income.
Even before the bank’s decision, many lenders were starting to increase some of their mortgage interest rates.
Figures compiled by RateCity.com.au show that during the past month, 19 lenders have increased at least one three-year fixed rate while 17 have increased at least one two-year fixed rate.
Job site Indeed Asia-Pacific chief economist Callam Pickering said the national economy strengthened over June, exceeding policymakers’ expectations.
“However, the RBA remains dovish, not expecting rates to rise before 2024,” Mr Pickering said. “That said, the recent data flow suggests tighter policy next year is certainly possible.”
EY chief economist Jo Masters said the change in Dr Lowe’s language away from “2024 at the earliest” for a cash rate rise was notable.
“If the economic recovery continues to surprise on the upside, the RBA will need to act on the cash rate earlier than the current guidance,” she said.
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