Glenn Stevens gives free kick for new RBA chief Philip Lowe

New RBA chief ­Philip Lowe has been given time to ­assess the heat rate cuts have added to the property market.

RBA governor Glenn Stevens, left, is handing the governor reins to his deputy, Philip Lowe.

New Reserve Bank governor ­Philip Lowe has been given time to ­assess the heat that recent official rate cuts have added to the property market, after his predecessor expressed ongoing confidence despite indicators and experts suggesting risks were rising.

In his final RBA monetary policy meeting, governor Glenn Stevens ended his 10-year tenure by holding the cash rate steady at a record low 1.5 per cent, as expected by economists.

Leaving a blank canvas for Dr Lowe to work with, Mr Stevens gave little indication of the outlook for the cash rate, noting only that rate cuts in May and August would help inspire sustainable economic growth and push inflation towards the 2-3 per cent target range.

The dollar slipped following the decision before rising to around US76.5c in late trading.

The sharemarket’s key S&P/ASX 200 index followed a similar path before ending down 0.3 per cent at 5413.6 points.

With second-quarter GDP data due out today expected to reveal strong economic growth of more than 3 per cent annually, most economists believe the RBA will leave rates on hold for the rest of this year, before resuming its cutting cycle — which has lasted almost five years — next year.

Financial markets are pricing in a 42 per cent chance of a rate cut by year’s end.

GRAPHIC: RBA statement annotated

While Mr Stevens is highly regarded for delivering ongoing growth despite the global financial crisis and muted help from government, he came under fire last month for misreading the property market when subsequent data contradicted his claim that the “likelihood of lower interest rates exacerbating risks in the housing market has diminished”.

Even so, at a function in Sydney last night honouring Mr Stevens’ retirement from the central bank, Scott Morrison commended the outgoing governor’s “strategic ­patience” in overseeing the economy over the past decade.

“Your tenure as governor coincided with one of the most severe downturns in the global economy, requiring deft stewardship of monetary policy through a challenging decade,” the Treasurer said.

“In helping to steer us through uncertain times, while ensuring continued economic growth and low and stable inflation, your term as governor has been a great success in securing our prosperity,” he added.

Speaking at the function, Dr Lowe described Mr Stevens as a “man of courage” who was prepared to put forward unpopular opinions.

“Glenn has relentlessly served the interests of the Australian ­people,” Dr Lowe said.

“He helped successfully navigate our economy through the biggest resources boom in a century and a global financial crisis.”

Earlier yesterday, in releasing a statement on the cash rate, Mr Stevens had removed the previous month’s paragraph saying: “The likelihood of lower interest rates exacerbating risks in the housing market has diminished.”

The move came after house ­prices, building approvals and auction clearance rates jumped in the wake of a previous RBA rate cut, extending the four-year boom in Sydney and Melbourne that some experts have labelled a bubble.

Westpac veteran economist and RBA watcher Bill Evans said the central bank’s revision of the risks in property was not surprising after renewed evidence of strength in Melbourne and Sydney, including clearance rates above 80 per cent in the latter.

Capital city prices rose 1.1 per cent last month, fuelled by gains in Sydney, which is up 9.4 per cent over the past year and 64 per cent since 2012, according to Core­Logic.

“The confidence around housing we saw in August has been shaken a little,” Mr Evans said.

ANZ economists agreed, noting: “Our interpretation of this is that while the medium-term themes remain intact, the RBA is slightly less comfortable, with recent high-frequency data showing a resurgence of housing strength.”

UBS economist George Tharenou took a different view, claiming the RBA had “again downplayed concerns” about housing as the banking regulator’s heightened supervision strengthened lending standards, and overall prices had only risen “moderately”.

But fears about parts of the market are growing.

Apartment developments in Brisbane, Melbourne and Sydney are swamped by oversupply and there are concerns that units may fail to settle.

In a major report last week, broker CLSA claimed the housing cycle had “peaked” and tightening bank lending standards would spur a “correction”, starting with cheap apartments, leading to defaults among developers and a contraction in construction.

“Issues of affordability and household debt are overextending Australia’s real estate bubble, which is being held aloft by foreign capital,” CLSA claimed, noting there was $16 billion worth of excess apartments in Melbourne and Brisbane at risk of failing to settle in the next two years.

Since late 2014, The Australian Prudential Regulation Authority has responded to fears of weakening lending standards by capping banks’ credit growth to investors at 10 per cent annually and making lenders check that borrowers can repay if interest rates return to 7 per cent.

More recently, as the big four major banks also pulled back on lending to foreigners and apartment buyers, APRA increased its scrutiny of banks’ commercial lending.

In an interview with The Australian last month, Mr Stevens said attempting to contain credit with regulatory tools over the long term while interest rates were low would eventually fail.

Noting Mr Stevens’ comments, APRA chairman Wayne Byres stated that the 10 per cent cent limit on lending to investors was being reviewed.

Ahead of Spring, Mortgage Choice chief John Flavell said “even more heat” was likely in the property market as buyers and sellers came out of their “winter hibernation”.

But banks and other lenders are becoming increasingly selective about borrowers and pricing, with ING Direct last week quietly hiking some variable mortgage rates.