Richard Gluyas| The Australian| 23 June 2022
The Council of Financial Regulators is keeping a close eye on emerging risks in the housing market, amid rising pressure on household budgets from banks passing on Reserve Bank rate hikes to their customers.
The CFR, which had its regular quarterly meeting of the four main financial regulators on Monday, also warned about the impact on borrowing capacity.
“The council will be closely monitoring the effects of rising interest rates on the household sector,” it said in a statement on Thursday.
“Members emphasised the additional resilience provided by the substantial housing equity and payment buffers built up by households since the onset of the pandemic.”
The main issues discussed at the annual meeting of regulators were de-banking and developments related to crypto assets.
Advice was expected to be provided to the new Labor Government in August on how risk aversion by banks to certain sectors could be addressed, along with ways to improve transparency about banks’ decision-making processes.
The meeting also discussed recent crypto developments, including the crash in flagship crypto assets like bitcoin, which has slumped from a high of $US60,000 to less than $US20,000.
“Participants agreed on the importance of a robust regulatory framework to protect investors and guard against potential financial stability risks,” the CFR said.
“The meeting also discussed the increased interest by industry participants in the issuance of Australian dollar stablecoins and the regulatory implications.”
After a prolonged period of near-zero interest rates due to emergency Covid-19 settings, the RBA lifted the cash rate by 75 basis points to 0.85 per cent in its last two board meetings in May and June.
Like other central banks, the RBA is trying to flatten inflation, which governor Philip Lowe has said was likely to peak at about seven per cent by the end of the year.
Dr Lowe has forecast the cash rate could increase to 2.5 per cent before inflation starts to settle back into the RBA’s target range of 2-3 per cent.
The council, comprising the RBA, the Australian Securities & Investments Commission, the Australian Prudential Regulation Authority and Treasury, said housing indicators suggested that activity in the major cities in recent months.
Housing price growth nationally had slowed, although housing lending was “only just starting to ease”.
The meeting also discussed pass-through of RBA cash-rate increases to deposit rates.
It was noted that, given the cash rate was still at a low level, there had been much less pass-through to deposit rates than to lending rates so far.
It was agreed the CFR would continue to monitor pass-through closely.