The Australian Prudential Regulation Authority (APRA) has published its annual update on macroprudential policy outlining the reasons why existing policy settings remain appropriate.

APRA has determined that:

• the countercyclical capital buffer will remain at 1.0 per cent of risk weighted assets so that banks have an additional capital buffer for stress situations;
• the mortgage serviceability buffer will be kept at 3 percentage points to maintain prudent lending standards. It says it provides an important contingency for new borrowers facing the risks of weaker conditions in the labour market, persistently high inflation and the potential for further increases in borrowing rates; and
• capital distribution or lending limits have not been applied given the improvement in new loan quality and the current composition of credit in the economy.

In determining to keep its current capital- and credit-based macroprudential settings in place, APRA took account of ongoing cost-of-living pressures, the domestic and global economic outlook, particularly the expected easing in labour market conditions, and the potential for higher borrowing costs. APRA also considered the level of capital on bank balance sheets and the expected performance of their lending assets.

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