(Australian Associated Press)
Reserve Bank governor Philip Lowe has urged banks to loosen the purse strings on mortgage credit, saying the housing downturn is unlikely to end Australia’s 27-year run without a recession.
Dr Lowe said on Wednesday that the ongoing decline in property values, which is most marked in Sydney and Melbourne, was a manageable correction following supercharged growth between 2012 and 2017.
He said many lenders have become too risk adverse in cutting back on home loan availability.
“Credit conditions tightened more than was probably required,” Dr Lowe told the AFR Business Summit in Sydney.
“It is important that banks are prepared to take credit risk, and it’s important that they have the capacity to manage that risk well. If they can’t do this, then the economy will suffer.”
Data out later on Wednesday is expected to show the economy grew by about 0.4 per cent in the three months to December 31, with an annual pace of about 2.6 per cent – below the RBA’s 2.75 per cent estimate.
But Dr Lowe again sounded the optimistic note on wages growth and employment that has kept the RBA from joining many economists in believing the cash rate needs to be cut from an all-time low 1.5 per cent in order to stimulate consumer spending.
“A further tightening of the labour market is expected to see a gradual increase in wages growth and faster income growth,” Dr Lowe said.
“This should provide a counterweight to the effect on spending of lower housing prices.”
Dr Lowe reiterated that the RBA remained neutral on the cash rate, claiming 1.5 per cent – in place since August 2016 and confirmed on Tuesday – was “clearly stimulatory” and “supporting the creation of jobs”.