August 12, 2015 / 10:14 AM / 2 years ago

Australia's RBA warns on household borrowing risks

PERTH, Aug 12 (Reuters) - Australia's central bank has again warned that a boom in consumer spending fuelled by borrowing would not be in the national interest, a sign of its continuing reluctance to cut interest rates any deeper.

Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said a long expansion in debt that went hand in hand with rising land and home prices, had left households more vulnerable than in the past.

"Given the position of household balance sheets, it is unlikely to be in our long-term interest for a consumption boom to be financed by a pick-up in household borrowing," Lowe said in a speech on land values in Perth.

"This is something we continue to be cognisant of in the setting of monetary policy."

The central bank cut interest rates twice this year to take them to a record low of 2 percent but has since sounded wary on easing any further, in part due to rapidly rising home prices in Sydney and Melbourne.

Lowe said higher land and home values had made owners better off, but made it harder for first-time buyers to afford property.

"Ever-rising housing prices, relative to our incomes, do increase risks in the economy and are unlikely to make us better off as a nation," he said. "Rising housing prices are best matched by rising incomes."

He also noted that rising home prices seemed to be providing less of a boost to consumer spending than they did a decade or so ago.

"In the early 2000s, when housing prices and real incomes were rising quickly, many households used the higher value of their housing assets to increase their spending," said Lowe.

"With slower expected future income growth and increased concerns about future housing costs, the response to higher housing prices looks to be smaller than it was previously." (Reporting by Wayne Cole; Editing by Jacqueline Wong)

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