Two women walk next to the Reserve Bank of Australia headquarters in central Sydney, Australia, on February 6, 2018.Reuters/Daniel Muñoz/File Photo Obtaining license rights
SYDNEY, Oct 6 (Reuters) – Australia’s economy is well placed to weather tensions in global financial markets, Australia says, despite growing risks of a “disorderly” decline in asset prices and a slowdown in China’s economy. the central bank said on Friday.
The Reserve Bank of Australia (RBA) also noted in its semi-annual financial stability review that rising interest rates were putting more households into financial stress, but interest rates would have to rise again. It was determined that most households would be able to cope with the situation.
In a foreword to the 71-page review, RBA Governor Michelle Bullock said: “Although most Australian households and businesses remain well placed to adapt to a range of difficult economic conditions, they remain vulnerable to further shocks. There are some places,” he said.
This will be Block’s first review since he was promoted from deputy in mid-September.
In a bid to rein in soaring inflation, the central bank has raised interest rates to a 10-year high of 4.1%, causing widespread financial stress for households with debt levels reaching record peaks.
This tension is one reason the RBA has held off on raising interest rates for the past four months, but continues to warn that further tightening may be necessary if inflation does not subside as expected.
The study found that while most borrowers with adjustable-rate mortgages saw their payments increase by 30% to 50%, many borrowers with lower fixed-rate loans also experienced rollover increases. It was estimated that a similar increase would be expected.
As a result, the proportion of homeowners whose loan costs and spending on necessities exceeded their income rose to about 5% from 1% at the beginning of 2022. If spending is measured more broadly, that share could be as high as 13%. he added.
“A small but increasing proportion of borrowers are on the brink or in the early stages of financial stress,” the study said.
Still, the Reserve Bank of Australia has determined that Australian banks have sufficient capital to absorb higher loan arrears and losses and are generally able to cope with the stress.
Instead, much of the review focused on risks from offshore, where tightening global financial conditions could lead to a chaotic fall in asset prices and weaker economic growth.
The recent vicious sell-off in U.S. Treasuries has sent yields soaring around the world, putting pressure on stock markets in the process.
Those pressures will increase if inflation proves more stubborn than expected and interest rates need to remain high for an extended period of time, the RBA warned.
“Tight global financial conditions may spill over into Australia through funding market linkages and risk aversion,” the study said.
The RBA said financial institutions in some countries, particularly the US, were also exposed to commercial property losses, which could reduce their lending capacity.
Another area of concern is China’s property sector, where financial stress is proving to be a drag on Australia, the world’s second-largest economy and single largest export market.
(Reporting by Wayne Cole)
Keywords: Australian Economy/RBA
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