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Aussie dollar drops after RBA comment on household debt

Aussie dollar drops after RBA comment on household debt

The Australian dollar dropped after the Reserve Bank of Australia held the cash rate at 1.5% but commented on rising household debt.

The Australian dollar fell after the Reserve Bank of Australia (RBA) commented on rising household debt in the country, as its board left the official cash rate unchanged at 1.5% at its monthly meeting.

RBA governor Philip Lowe said the increase in household borrowing, mainly to buy a home, continues to outpace growth in household income.

"By reinforcing strong lending standards, the recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness," he said in a statement today.

"Lenders need to ensure that the serviceability metrics that they use are appropriate for current conditions. A reduced reliance on interest-only housing loans in the Australian market would also be a positive development," said Dr Lowe.

The Australian dollar dropped to an intraday low of 75.8 US cents at 2:45pm Sydney time, having traded at 76.06 US cents just before the central bank released its announcement at 2:30pm.

The RBA's move to keep the cash rate on hold was widely expected by investors, who priced in a 98% chance of no change to the cash rate, according to the Australian Securities Exchange RBA Rate Indicator.

The cash rate has been at a historic low of 1.5% for eight consecutive months. It was last changed in August 2016, when the RBA cut it by 25 basis points from 1.75%.

Dr Lowe's comments on global economic conditions, as well as Australia's economy and inflation, were largely unchanged from last month.

He noted "a little higher" unemployment rate in the country, but said "various forward-looking indicators still point to continued growth in employment over the period ahead".

CommBank's economics team said in a note released after the announcement that they expect the RBA to continue to hold the cash rate at 1.5% "throughout 2017 and well into 2018".

 

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance.