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UPDATE 1-Australia's central bank warns of growing risks in housing
March 21, 2017 / 2:28 AM / 8 months ago

UPDATE 1-Australia's central bank warns of growing risks in housing

* RBA sees ‘build-up of risks’ in housing market

* Futures market sees no chance of rate cut this year

* RBA would need major jobs, housing losses to cut - CBA economist (Adds home prices, economists comment, FX level, changes slug)

By Swati Pandey

SYDNEY, March 21 (Reuters) - Australia’s central bank saw growing risks in the nation’s hot housing market when it left rates steady earlier this month, underlining the case against further easing in policy.

Housing affordability, or the lack of it, has become a hot-button issue for the conservative government of Prime Minister Malcolm Turnbull, which has promised measures to ease the problem in its May budget.

Minutes of its March 7 meeting released on Tuesday showed the Reserve Bank of Australia (RBA) were generally optimistic about the A$1.7 trillion ($1.31 trillion) economy, which is transitioning away from a decade-long boom in mining investment.

However, board members felt there had been a “build-up of risks” in the housing market as borrowing for investment fuelled brisk price rises in Sydney and Melbourne.

“The Australian housing market continues to cause much angst around poor affordability and high household debt,” said Shane Oliver, chief economist at AMP Capital.

“Recent RBA commentary strongly hints that more macroprudential measures to tighten lending standards are on the way. This is in part about reducing the risks to financial stability when it’s too early to consider raising rates.”

Data from the Australian Bureau of Statistics (ABS) on Tuesday showed home prices rose 4.1 percent in the December quarter, from the previous quarter, with Sydney up a red-hot 5.2 percent.

The pace has quickened even further this year. Figures from property consultant CoreLogic showed prices were currently growing at an annual 19 percent in Sydney, while gains across the five capital cities amounted to 12.7 percent.

Much of that fever has been fuelled by borrowing for investment properties, driving household debt up to a record 180 percent of disposable income.

RBA Governor Philip Lowe has argued there was little economic benefit in lowering rates from an already low 1.5 percent if all it does is lift debt to levels that would impact consumer spending power.

Data out recently showed retail sales in January grew at a tepid pace for a third straight month, while the outlook for capital expenditure remained uninspiring.

The RBA did note that tighter supervision had contributed to “some” strengthening in lending standard by the banks, which had also raised rates on some mortgage products recently.

With Lowe repeatedly arguing against cutting rates further, financial markets have all but priced out the chance of another cut this year. Some investors are even toying with the idea of hike in early 2018.

“In our view, it would take a sustained loss of momentum in job creation or a fall in dwelling prices for Lowe to entertain the idea of taking the policy rate lower,” said Gareth Aird, senior economist at Commonwealth Bank.

“Neither outcome is in our central scenario and as such, we see the RBA on hold over 2017 and well into 2018.”

$1 = 1.2935 Australian dollars Reporting by Swati Pandey; Editing by Sam Holmes

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