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The Reserve Bank says potential changes to lending rules to manage the ever-increasing risk in house prices will not be like a freight train. The regulatory authority is pondering over the changing of rules for investors seeking access to funds as a way to reign in the bubble that has developed in the local property market.Overall investors make up 45% of total loans, which is to the dislike of the reserve bank. Prices in capital cities noticeably Sydney, have shot up and are out of reach for most families as the average price hovers around the $800,000 mark.

RBA deputy governor Philip Lowe says a sharp increase in investors purchasing property is a major factor in the price rise. “It is important to make clear that I am not saying that this will end badly, or even that is likely to end badly – just that, on average, recent loans are probably a bit more risky than those made earlier,” he told a business conference in Sydney.”Given this, it is prudent for both borrowers and lenders to be careful.”

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However, any new lending rules to address rising risk levels will not represent “a return to the type of heavy regulation we saw in earlier decades”, Dr Lowe said. Lenders will always find ways of getting money to those that want it, he said. “All this means that we need to be realistic about what can be achieved through changes in the regulatory parameters alone,” Dr Lowe said. “This realism, however, need not preclude consideration of modest and sensible changes within the existing prudential framework.”

Australian dollar

The Australian dollar rebounded above the US88.00 cents mark today, trading around US88.20 cents after positive news from China came in ahead of consensus. Chinese GDP for the September quarter came in at 7.3% against analysts expectations of 7.2% showing the local economy is not done with yet.The GDP data is being eyed for signs on whether the Chinese government will inject more stimulus into the economy to help with a fall in property prices and a slowdown in credit growth. Late last week, reports from the media suggest that China’s central bank is planning to feed 200 billion yuan (USD 32.6 billion) into the banking system. This latest  healthy GDP number may put a question mark over the amount of money needed to stimulate the economy.

Market Economics managing director Stephen Koukoulas said the mildly positive response from markets was a sign of relief that the numbers were not worse.”China is still growing at a decent to good pace, which is a marked difference to the mixed news coming out of the US and the unambiguously bad news out of the Europe,”   he observed. Other Chinese figures released today were more of a mixed bag, according to Mr Koukoulas.

The Aussie currency was also helped by a 1% rise in Iron ore prices to $81.60 per tonne which after hovering around 5 year lows for quite a while may have reached a bottom.

Sharemarket

Australian shares lost early gains but still managed to finish in positive territory for a sixth straight day following on from gains from wall st overnight. The S&P/ASX 200 finished 0.1 percent or 5.6 points at 5,325. The benchmark ended 0.9 percent higher on Monday.

The release of the latest minutes from the reserve bank of Australia offered no new clues into the future direction of the bank, which may have contributed to the slight rise.

CMC Markets chief market analyst Ric Spooner suspected traders may be concerned prices have grown far enough in recent days. “People are concerned not about a major risk event, but the possibility that some of these world economies have not not been responding for a long time with growth … things remain sluggish in Europe,” he said.

Important indicators due out tomorrow such As the CPI numbers from Australia and RBA governor Glen Stevens speech will possibly have a profound impact on the market.