Financial Position Generally Resilient, Not A Reason To Hold Rates

The RBA published its Financial Stability Review with the key points regarding mortgages and household financial stress being covered by Governor Lowe during yesterday’s Q&A at the National Press Club (see Governor Lowe Will Hike If Needed, Rate Cut Talk "Way Too Early"). Generally households are resilient but pressure on their budgets is expected to build over the months ahead. The report was fairly positive about Australia’s financial position, thus that is unlikely to be a reason for the RBA not to hike if it feels it needs to.

• The RBA has observed that higher rates and inflation are having an impact on budgets and that financial stress is increasing among some households but most remain resilient thanks to increased saving and strong employment. But the squeeze is expected to build going forward.
• Australian banks are “strong” and are in a good position to continue lending to both businesses and households. The central bank believes that they can handle an increase in loans falling into arrears, which they expect to occur but from current very low levels. Other financial institutions, such as super funds and insurers, are also in a good position.
• It noted that despite recent banking turmoil, the global financial system has proved “resilient”, supported by the timely response to the troubles and reforms made in prior years. It did warn that high household and business debt could be a point of vulnerability with monetary policy continuing to be tightened. Australia has one of the highest household indebtedness ratios in the OECD at 211% in 2021.
• See report here.