In its semi-annual review on financial stabilitythe Reserve Bank of Australia (RBA) has warned on Friday that risks to financial stability have increased in recent months.
The RBA has said that, as interest rates rise, so do pressures on Australian household budgets and corporate cash flowswhile house prices decline.
“Risks to financial stability would be magnified by a further substantial tightening of global financial conditions“, the RBA has said in its 70-page review.
“The prospects for financial stability in the coming years will depend largely on the ability of households and businesses to weather difficult economic conditions both in Australia and around the world.“, the RBA stated.
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Financial stability risks have increased globally.
The markets are stressed by synchronized monetary policy tightening, geopolitical tensions, rising dollar and rising energy prices.
stability risks would be magnified by a further tightening of global financial conditions.
Australian banks are liquid, well capitalized and they are resistant to any loan delays.
It is important that banks’ lending standards remain prudent.
Australian households and banks tend to be financially well positioned.
Some households are already feeling the pressure of higher rateswhich will probably last for some time.
The delays imply that the rate hikes have not yet been fully passed through to mortgage payments.
A small group of borrowers is especially vulnerable to repayment difficulties.
Most mortgage holders have considerable equity in their homes and could withstand very significant price declines.
Many companies are facing increasing cost pressureshigher rates and slower earnings growth.
Indicators of financial stress are likely to increase in the future.
Cyber attacks and climate change are the main challenges for financial systems.
Source: Fx Street
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