RBA assistant governor Christopher Kent said higher interest rates are taking longer to transmit through to the economy than is usually the case.
The explosion in fixed-rate lending during the pandemic and the fact households have stashed away at least a year’s worth of extra mortgage repayments are blunting the effect of higher interest rates, the Reserve Bank of Australia says.
“Volatility in Australian financial markets has picked up, but markets are still functioning and, most importantly, Australian banks are unquestionably strong – the banks’ capital and liquidity positions are well above APRA’s regulatory requirements,” he said.“Banks are already well advanced on their bond issuance plans for the year and could defer their bond issuance for a while.
“For those on variable rate loans, borrowers with lower incomes added $17,000 on average to buffers in offset and redraw accounts over the past three years; this compares with the average of $39,000 accumulated by the highest income borrowers,” Dr Kent said. Some households may have no choice but to run down their savings to meet higher repayments and cost of living pressures, while other borrowers could choose to save more since higher rates increase the incentive to pay down loans more quickly.is that so many households fixed their rates during the pandemic, with 880,000 fixed loans to switch back to variable rates over the course of this year.
However, the central banker stressed it was business as usual for monetary policy, given household cash flows were just one of many ways higher rates cool the economy.
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