RBA Sees Financial Stability Risks From Record-Low Rates, Housing Boom

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By James Glynn

SYDNEY–Record low interest rates have contributed to higher house prices, creating the potential for excessive borrowing, the Reserve Bank of Australia said Friday in a report card on the stability of the country’s financial sector.

“Low interest rates have contributed to high prices for financial assets and housing. There has been some increased risk-taking and higher borrowing,” the RBA said.

Vulnerabilities can increase if housing market strength turns to “exuberance,” with borrowers taking on greater risk given expectations of further price rises and banks potentially easing lending standards, it said.

The warning about the frothy housing market comes after the Australian Prudential Regulation Authority this week tried to put a brake on house prices, which are on track to increase by more than 20% this year.

On Wednesday, APRA increased the interest-rate buffer used to assess loans, a move that will reduce…

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