AUD/USD and NZD/USD Fundamental Daily Forecast – RBA’s Kent Sees No Immediate Decline in Lending Standards

Australian economists widely expect macroprudential tightening measures to be reintroduced later this year.
Ahead of the release of the latest announcements from the U.S. Federal Reserve at 18:00 GMT on Wednesday, an Australian central banker offered his assessment of the country’s lending standards amid reports of an overheating housing market.

Reuters is reporting that Australian regulators would consider tightening macroprudential policy if home lending standards declined and posed financial stability risks, though that point had not been reached yet, a senior central banker said on Wednesday.
The country’s housing market is in the midst of a broad-based boom, raising fears of asset bubbles and prompting speculation the Reserve Bank of Australia (RBA) may have to pull interest rates higher to cap gains.

“We don’t think monetary policy can or should try to control asset prices,” Reserve Bank of Australia (RBA) Assistant Governor Chris Kent said in Sydney, responding to questions following a speech on small business finance.

“If asset prices are rising on the back of deteriorating lending standards and a rising financial risk, that would be of concern to the council members so they could consider a number of different responses,” he said, referring to the Council of Financial Regulators, which includes the prudential watchdog.

“We are not at the point, currently.”

Kent said there were a “lot of other avenues” to pursue before thinking about raising the cash rate, which is set to stay at a record low of 0.1% until inflation is sustainably within the RBA’s 2-3% target range.

In response to concern about financial stability risks in the past, the Australian Prudential Regulation Authority (APRA) had toughened lending standards for banks, including demanding more capital be kept against mortgages.

Australian economists widely expect macroprudential tightening measures to be reintroduced later this year.

“The RBA won’t target the housing market directly,” Citi economist Josh Williamson said.

“Tighter monetary policy… is far too much of a blunt instrument to use on a sectoral problem and would take the RBA further away from the goals of full employment and returning inflation stability to within the target band.”

Property prices have skyrocketed across the Tasman Sea too prompting New Zealand’s central bank to tighten mortgage lending to investors. It also removed funding facilities for bank which were introduced during the pandemic.

The Australian Dollar (AUD/USD) showed little reaction to the speech as most of the focus was on the Fed’s announcements.