reinforced its investor benchmark. while the interest - only measure was focused on reducing the volume of higher - risk lending rather https : / / www. rba. gov. au / speeches / 2019 / sp - ag - 2019 - 03 - 20. html 8 / 14 3 / 20 / 2019 property, debt and financial stability | speeches | rba than lending to a particular type of borrower, there was a noticeable impact on the growth in lending to housing investors since interest - only loans tend to be the product of choice for many investors. both the investor lending benchmark and the interest - only lending benchmark have been removed for banks that have provided assurances on their lending policies and practices to apra. but the improvements in lending practices implemented by the banks over the past few years have resulted in credit conditions being tighter than they were a few years ago. application processes have been taking a bit longer as lenders are being more diligent about verifying borrower income and expenses, borrowers are generally being offered smaller maximum loans and some borrowers are finding it more difficult to obtain a loan. banks are more closely adhering to their lending policies, resulting in fewer exceptions being granted and there are fewer high lvr and interest - only loans being approved. there have been some concerns expressed that these developments have been a key reason for the slowing in credit growth over the past year. coupled with possibly some increased risk aversion of front - line lending staff in the wake of the royal commission into misconduct in the banking, superannuation and financial services industry, the concern is that this has been impacting housing credit growth and, by extension, housing prices. as concluded in the banks'february statement on monetary policy, and noted by the governor in a recent speech, tighter credit conditions do not appear to be the main reason for declining housing credit growth. [ 5 ] the evidence points towards declining demand for housing credit as being a more important factor. nevertheless, it is possible that tighter lending standards could be impacting developers of apartments. this could be direct, reflecting banks'desire to reduce their exposure to the property market, particularly high - density development. but it could also be indirect by banks tightening their lending standards for purchases of new apartments, hence impacting pre - sales for developers and their ability to obtain finance. the deputy governor noted this in a speech in november 2018 and concluded that this was of potentially higher risk to the economy than household lending standards. from a financial stability

rise to undesirable fluctuations in the markets for real capital that have no basis in economic fundamentals. the economic situation varies over time. monetary policy will set an interest rate that is alternately above and below the neutral rate. consequently, the interest rate level will probably not deviate substantially from the long - term equilibrium rate over time. by taking a gradualist approach to interest rate setting, it is also possible to assess whether imbalances are developing in capital markets. interest rate developments from a historical perspective in the long term, the equilibrium real interest rate will be determined by underlying structural relationships in the economy. these relationships will probably only be changed gradually so that changes in nominal rates will primarily reflect changes in expected inflation. in the short term, however, the real interest rate will vary, not least because monetary policy seeks to influence the real interest rate in the short and medium term. changes in nominal interest rates might therefore reflect changes in both real interest rates and inflation expectations. nominal interest rates were relatively stable from the 1800s and up to the 1950s. 1 periodically strong fluctuations in inflation resulted in substantial variations in the real interest rate from one year to the next, as we measure it in retrospect. the gold standard set the framework for monetary policy at the end of the 1800s and up to 1929. 2 during the gold standard era, the central bank determined the price of the national currency relative to the price of gold. central banks had to keep stocks of gold that could be used to stabilise the gold price by actively buying and selling gold in the market. the money supply and inflation in a country are then determined by the supply of gold on the world market. when two or more currencies are pegged to gold at a fixed price, these currencies will also have a fixed price in relation to each other. as in other systems with fixed exchange rates, this restricted the individual country ’ s scope for using the interest rate as an instrument to stabilise the real economy. in the interwar years, nominal interest rates were relatively high. this may primarily be ascribed to the policy of gold parity that was pursued in many countries. the aim of a number of countries, including norway, was to strengthen the value of the national currency against gold, so as to reestablish the gold parity of the pre - first world war period. nominal interest rates increased markedly from 1950 – 1985, reflecting accelerating inflation in this period. after 1985, nominal interest rates