Are Australia’s Dear Banks Set To Guard The Economic Growth While RBA Is In The Watch-Out Zone

Aussie Banks seem to take the onus of Reserve Bank of Australia in uplifting the housing market as a sincere custodian of RBA’s monetary policy.

It goes without saying that the Australian housing market is going through the severe adversity with housing prices in Sydney, Melbourne and Perth being declined further since the beginning of 2019. The collapse in housing prices has parked the entire nation’s economy into the red zone.

This tells us about the depressive GDP figure which landed up below the market expectation at 0.2% in the December quarter. The economy slowed down sharply due to the crash in the global financial market accompanied by the slump in dwelling investment near the end of 2018. 

Australia’s central bank noted all the tension in the face of slower GDP growth, resilient labour markets and lower turnover in the housing market, but had continued to hold the unchanged stance for the monetary policy with the cash rate remaining steady at 1.5%.

The onus now lies with the Australian Banks! To move ahead in this direction, the Reserve Bank of Australia has softened its credit constraints so that Banks could offer loans at lower rates which in turn would fuel up the dwelling investments.

The loans available at lower lending rates has the potential to make a much-needed correction in the housing market. It was recorded that the price index for residential properties fell 2.4% in the December quarter 2018 on the basis of a weighted average of the eight capital cities. Australia’s two major cities, Sydney and Melbourne got slashed down by the annual residential property prices decline of 7.8% and 6.4%, respectively.

It was further observed that the growth in housing lending has declined noticeably due to slow-paced demand for housing credit. This underscores the tight credit policies including interest-only and investor lending benchmarks set by the government.

The Reserve Bank of Australia has recently removed some credit constraints enabling banks to accelerate their lending growth and bring favourable changes in the housing market. The government has determined that Australian banks are putting forward a tough competition in the banking industry by more diligent lending practices and lower interest rates being offered on new loans particularly to borrowers of high credit quality.

It is firmly believed by the market participants that the government should further soften the lending standard as it adversely affects the property developers. The research by RBA also suggested that the construction activities in Australia are highly responsive to the interest rate which seems to be taken care of.

With the loosen credit standards and low interest rates, the developers would be able to obtain funds simply and at lesser finance costs. It would not only improve the lending to the investor, but it would also help the banks to achieve substantial growth in housing lending to owner-occupiers.

Also Read: An Interesting Dichotomy: The Aussie Economy Is Slowing Down While The Aussie Stock Market Is Surging Up


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