Banks may have been given the green light to hold back on further rate cuts after RBA governor Glenn Stevens expressed his concerns of inducing borrowers into cheap debt.
In a speech at James Cook University yesterday, Mr Stevens said there was still scope to ease monetary policy further if necessary but he warned any further reductions to interest rates could tempt a large number of marginal borrowers into debts they won’t be able to afford in the long run.
“It is the intention of the current monetary policy settings to lower debt servicing costs, assist efforts to reduce leverage and support demand.
“It would be counterproductive, though, if further reductions in interest rates induced a large number of marginal borrowers into debts they could service only at unusually low interest rates.”
Mr Stevens said for this reason the RBA and lenders needed to exercise care in any further rate reductions, acknowledging that lenders were being more conservative in lending to households.
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