The Reserve Bank has sent Australia's banks a blunt message not to lower lending standards, urging the sector to behave cautiously while official interest rates are at their lowest level in more than half a century.
With debate raging over the resurgent housing market, minutes from this month's Reserve Bank board meeting show members discussed the risks posed by very cheap credit before leaving the cash rate unchanged at 2.5 per cent.
The Reserve also revealed it was closely monitoring the growing trend of borrowing to invest in real estate through do-it-yourself retirement funds.
''In the current environment of low interest rates and slow credit growth, members agreed that it was especially important that banks maintained prudent lending standards,'' said the minutes, published on Tuesday.
The central bank also saw the trend towards geared property investment in the $500 billion self-managed super sector as a potential problem as an area in which ''households could be starting to take some risk with their finances; members noted that this development would be closely monitored by bank staff''.
While the RBA said Australia's financial system was in good health, the comments are likely to fuel the debate over the housing market.
With Sydney auction clearance rates at their highest in a decade and some analysts predicting house price gains of 10 per cent or more this year, real estate is emerging as a key concern for regulators.
HSBC chief economis...