The Reserve Bank of Australia's (RBA) Governor Glenn Stevens recently told a parliamentary economics committee that the RBA would intervene if banks lower their standards on lending.
Mr Stevens said while it is positive that banks were lending again after the global downturn, especially to small businesses, the RBA and the Australian Prudential Regulation Authority (APRA) were keeping a close eye on the finance industry.
Mr Stevens also put speculations regarding a rate rise to rest.
“I want to be clear though. Despite the speculation in various quarters, we have not thought about raising rates any time lately. I think that should be reasonably clear.
“I think the next step is then to press through the supervisory mechanism for the lenders to know who they are lending to ... keep giving the message about leverage and take a close look at standards of lending,” Mr Stevens
To ensure there is not a surge in investor loans, the RBA is keeping an open mind about using macro-prudential tools that set rules for banks on how much they are allowed to lend.
Countries such as New Zealand and Canada have been using macro-prudential tools to ensure house prices and lending amounts are not inflated.
“The strongest step would be the dreaded macro-prudential tool; they are the latest fad internationally. And I said that I do not rule out the use of those or asking if APRA will use them, if needed. They would remain on the table as a possibility as well,” Mr Stevens said.