Macro-prudential action likely this year, ANZ predicts

“With credit growth set to accelerate over the coming months, ANZ Research expects APRA will announce hard macro-prudential controls by the end of the year,” they predicted.

Their forecasts now assume that price growth in Australia’s housing market will slow as ‘hard’ macro-prudential policy is implemented before the end of 2021.

In its most recent rate call, the RBA said that it would not increase the cash rate until actual inflation is sustainably between 2 and 3 per cent.

“For this to occur, the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently. This is unlikely to be until 2024 at the earliest,” the RBA said in a statement.

However, ANZ economists Felicity Emmett and Adelaide Timbrell insist that while neither the RBA or APRA explicitly target house prices, both have clear responsibilities when it comes to lending standards and trends around household debt.

ANZ’s research team argued that these factors represent key components of the strategic objectives for both bodies, and that current trends are “likely to be concerning for the regulators”.

According to Ms Emmett and Ms Timbrell, a 30 per cent rise in investor lending over the last three months is indicative of a speculative element in the market, and the share of high debt-to-income ratio loans in Australia’s financial system has quickly crept upwards in recent quarters.

Going forward, they said that “ANZ Research’s expectation is credit growth will lift above 7 per cent by the end of 2021 and will grow above household income by a significant margin for the next few years”.

As a result, Ms Emmett and Ms Timbrell claimed that APRA has begun moving towards macro-prudential action via “a soft touch approach”. 

Citing a recent quarterly statement from a meeting of Australia’s Council of Financial Regulators, they noted that APRA has reached out to larger authorised deposit-taking institutions (ADIs) in order “to seek assurances that they are proactively managing risks within their housing loan portfolios, and will maintain a strong focus on lending standards and lenders’ risk appetites”.

Ms Emmett and Ms Timbrell expect that multiple measures will be introduced, though the choices made by regulators may depend “on how the data evolves over the next couple of months”.

“Fine-tuning a gentle slowdown in the housing market will be a challenge. The regulators will want to avoid triggering a sharp turnaround in house prices, so ANZ Research expects they will go lightly in the first instance,” they said.