RBA says Australian households can weather interest rate hikes

“These payment cushions help protect against the risk that as interest rates rise, households will find themselves unable to repay their debts.”

She said a $260 billion increase in household savings during the pandemic and the introduction of tougher lending standards that require banks to test potential buyers’ ability to withstand a 3-point increase percentage rates also indicate that the economy is resilient to tighter monetary policy.

The S&P report says most borrowers will face higher rates, but lower-income households and new borrowers may fall behind on their repayments.

Bullock said the bank’s analysis of the impact of a 3 percentage point rise in interest rates showed that about a third of all people with adjustable rate mortgages were already paying down to make facing the higher interest tax.

However, around 30% of borrowers are facing an increase of more than 40% in their outstanding repayments.

ANZ Bank has changed its monetary policy outlook and now expects the RBA to raise the official exchange rate to 3% by the end of this year.

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Australian economics chief at ANZ David Plank said the bank is expected to make four more successive half-percentage-point interest rate hikes, starting with its August meeting. This would take the spot rate to 3.35% in November.

Plank said the sharp tightening of monetary policy was necessary because of strong job market momentum and risks that inflation could reach even higher heights than expected.

A survey by NAB shows that household mortgage stress has not changed in the first two quarters of the year, but could increase as interest rates rise.

The Australian Wellbeing Survey for the three months ending June this year found that people with housing debt continued to have ‘moderate’ concern about their level of debt, but around three in 10 said said a rate hike would lead to “high” stress levels on their home loan.

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