REPEAT: MNI 5 Things:RBA Bullock Says High Debt Impact MonPol

Repeats Story Initially Transmitted at 22:20 GMT Feb 19/17:20 EST Feb 19

By Sophia Rodrigues

     SYDNEY (MNI) - The following are the five key observations we made from the

Reserve Bank of Australia assistant governor Michele Bullock's speech Tuesday.

Ellis spoke at the Responsible Lending and Borrowing Summit in Sydney and the

speech was titled "Household Indebtedness and Mortgage Stress."

     --Bullock said high debt levels have an impact on the RBA's monetary policy

because they influence the calibration of interest rate changes. The more debt

households have, the more sensitive their cash flow, and hence consumption, is

likely to be a rise in interest rates. 

     --Large proportion of interest-only mortgages are due to expire between

2018 and 2022 and there is a risk that some borrowers may not meet criteria for

extending interest-only payments and would also find the step-up to principal

and interest repayments difficult to manage. This group might find themselves in

some financial stress, and while their proportion is small, the RBA will be

watching this group.

     --There are households in Australia that are experiencing financial stress

but the overall level of stress among mortgaged households remains "relatively

low."

     --Risks to financial stability from highly indebted households remain low

but the RBA continues to be watchful, and appropriate prudent lending standards

will continue to play a role in ensuring the financial system remains stable and

households borrow responsibly.

     --The measures implemented by Australian Prudential Regulation Authority

(APRA) and Australian Securities and Investments Commission (ASIC) have improved

quality of lending over the past couple of years but there is still a large

stock of housing debt that may not meet the current conservative lending

standards. This could pose a risk to financial stability.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com