In its semi-annual Financial Stability Report (FSR), the Reserve Bank of Australia (RBA) noted that it is “important borrowers are prepared for an increase in interest rates.”
Additional takeaways
Important borrowers and lenders are resilient to potential fall in house prices.
Household debt to income ratio is high, increases sensitivity to rising rates.
Important that lending standards do not slip given rising share of high DTI loans.
Some newer home loans could be relatively risky, have high DTI levels.
Financial resilience of households has improved since pandemic due to house prices, savings.
Many households have built substantial buffers on mortgages, equity in their homes.
Australian banks very well capitalised, have high holdings of liquid assets.
Non-bank lending still small at 5% of total, not a threat to stability.
Asset markets globally vulnerable to larger-than-expected rate increases.
Market reaction
AUD/USD is testing daily lows at 0.7475 on the RBA’s FSR, as the aussie remains uninspired by the hawkish hints offered by the above report. The spot is down 0.05% on the day.
