APRA maintains current macroprudential settings in uncertain environment

The Australian Prudential Regulation Authority (APRA) will keep its current macroprudential policy settings steady following its regular review of domestic and international economic and financial conditions and risks. 

APRA’s macroprudential policy tools are aimed at mitigating financial stability risks at a system-wide level to promote a safe and stable financial system that enables households and businesses to confidently borrow, save and invest for the future.  

In reaching the decision to keep the settings steady, APRA took account of high household indebtedness and a pick-up in credit growth, persistent cost-of-living pressures, a weakening jobs market and heightened geopolitical risks. Balanced against these risks, APRA noted that bank lending standards remain sound and non-performing loans remain low. 

As a result of these considerations, APRA has today confirmed that: 

• the mortgage serviceability buffer will remain at 3 percentage points;  

• the countercyclical capital buffer will remain at 1 per cent of risk-weighted assets; and 

• no limits on lending or constraints on capital distributions are being introduced.   

APRA Chair John Lonsdale said the risk of financial shocks had persisted over the past year however the sources of economic uncertainty had shifted. 

“Since APRA’s last announcement regarding its macroprudential policy settings in July, inflation has continued to moderate and the risk of higher interest rates has receded somewhat, but we are mindful of potential shocks to household incomes from a slowing labour market. That risk is exacerbated by uncertainty in the global economic environment including geopolitical instability. 

“Credit continues to flow to households and businesses and is accessible to good quality borrowers. Although house price growth has eased, prices are still 40 per cent higher than before the pandemic and household debt is high relative to incomes both compared with long-term trends and relative to international peers. This high household debt is a key vulnerability if adverse economic scenarios came to pass. We also have seen an uptick in non-performing loans, with the potential for further rises, especially if unemployment increases.  

“In light of these considerations, APRA maintains its current macroprudential policy settings. We will continue to closely monitor the external operating environment and will consider modifying these settings should that become appropriate,” Mr Lonsdale said.