The Reserve Bank of Australia (RBA) has indicated that Australian borrowers are feeling financial pressure, but the risk of mortgage defaults is relatively low. According to Andrea Brischetto, head of the RBA’s financial stability department, less than two percent of variable-rate owner-occupier borrowers are at a “real risk” of struggling to meet basic expenses or making mortgage payments. However, a more significant increase in unemployment or additional interest rate hikes could push this number higher, although RBA analysis suggests that most borrowers would be able to manage.
Brischetto noted that households are making difficult budget adjustments due to higher interest rates resulting in increased monthly home loan repayments. She reported that the number of borrowers experiencing severe financial stress had risen. Nevertheless, she emphasized that households are displaying resilience and are likely to continue to do so even in the event of an economic downturn. Recent economic data from the Australian Bureau of Statistics has indicated a weak household sector, with stagnant spending and the lowest household saving ratio since 2007.
Furthermore, Ms. Brischetto stated that high inflation and consecutive interest rate hikes have diminished households’ disposable income. Despite this, most households have found ways to manage, such as working additional hours, reducing spending on non-essential items, and dipping into savings or setting aside less than usual. Consequently, very few households are currently in the advanced stages of financial stress, with nearly 99 percent of loans being repaid on schedule or ahead.
On December 8, the first update to the statement on the conduct of monetary policy since the election of the Albanese government was published. Key structural changes and amendments to the central bank’s dual mandate were outlined, raising the prospect for a more proactive and focused approach to monetary policy going forward. Some economists have highlighted potential implications for the ongoing policy tightening cycle, based on the RBA’s appraisal of the underlying inflation forecasts.
Additionally, the statement also confirmed significant structural modifications set out by the review, including the anonymized voting of board members, which will be published following interest rate meetings. Treasurer Jim Chalmers endorsed these changes as part of the government’s effort to uphold a prominent central bank. However, opposition finance spokeswoman Jane Hume expressed concern about the impact of these changes on a potential increase in interest rates, emphasizing the need for fiscal policies to mitigate such risks.