Pity the banks.
First they come under fire from the royal banking commission…finding some of their dirtiest laundry aired in public.
Then they take action to ensure their lending practices are prudent enough to withstand the greater scrutiny.
Now, it seems, they’ve been too prudent.
Reverse Bank governor Philip Lowe is urging banks to give some slack to the purse strings puppeteering mortgage credit.
He says it’s unlikely that ongoing housing declines will end Australia’s 27 year recession free run.
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Manageable correction phase in housing downturn
On Wednesday morning, Lowe said the downturn seen most severely in Sydney and Melbourne, was the result of accelerated growth between 2012 and 2017 and a means of manageable correction.
But the housing supply and demand development crisis has led many lenders to take tightening of their home loan availability too far, Lowe warns.
‘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.’
Wages growth to prevent housing crash
Data from Wednesday afternoon is set to show a 0.4% rise in economic growth in three months (from 31 December), setting an annual growth rate of 2.6% which comes in under the RBA’s 2.75% estimate.
Despite many economics believing cuts to the cash rate are needed to generate consumer spending, Lowe sounded confident in both wage growth and employment in Australia.
‘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 echoed RBA’s neutral stance on cash rate, ensuring the 1.5% confirmed on Tuesday, unmoved sine 2016 — was ‘clearly stimulatory’ and ‘supporting the creation of jobs’.
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