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Rates will rise, so don't overcommit: RBA

Business

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A senior Reserve Bank official has told Australians not to overcommit with their home loans, warning interest rates will eventually rise.

Amid growing fears a property market bust could spur a recession, RBA deputy governor Dr Philip Lowe said regulatory measures and an increase in housing supply are slowing the rate of residential property price growth.

“It’s too early to be definitive but I think we’re on the cusp of seeing the supply response finally kick in, moderating price growth. And I hope that’s the case,” Lowe told a conference on Tuesday.

“But people do need to be careful… debt levels can’t keep rising faster than income.”

Lowe gave an upbeat assessment of the Australian economy, saying he was confident it is strong enough to resist a significant downturn.

He said while no one can be sure about what the future holds, the economy is flexible to adapt to the changing world.

“My central message is that these fundamentals are strong and that they provide us with the basis to be optimistic about the future,” he said.

Lowe said the weaker dollar has helped the economy deal with global shocks, such as the recent plunge in commodity prices.

“The depreciation over the past couple of years is playing an important role in helping the economy adjust to the wind-down of the boom in mining investment,” he said.

The Australian dollar has fallen as the mining boom faded and prices for Australia’s mining exports halved in value.

The weaker currency makes locally produced good and services more competitive with dearer imports, which gives a boost to local tourism, retailers and manufacturing.

Lowe said Australia’s links with Asia will also keep the economy strong, not just through mining and resources exports but also though agriculture.

“As average incomes in Asia grow, so too does the demand for protein,” he said.

“With our large tracts of agricultural land and the expertise built up from using that land over many decades, Australia has obvious advantages here.”

Lowe said while the focus in recent years has been on mining exports to China, he expects other exports to other Asian nations to play a greater part in strengthening the Australian economy.

“There are also significant opportunities elsewhere, including in Indonesia and India with their very large populations,” he said.

“Many of these opportunities lie in the services part of the economy, including in tourism, finance, education and professional services.”

– AAP

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