To avoid entering into a self-reinforcing cycle of increased inflation, thanks mainly to wage increases, or a recession, sustainability is essential. Whilst the RBA focus on their ideal inflation target range, homeowners are watching with keen interest to see what will happen next. Currently around one-third of all households have housing debt, but the RBA believe homeowners are in a good position to handle interest rate increases.
“Most households have substantial equity in their housing assets, and lending standards in recent years have been more prudent and have built in larger buffers for interest rate increases. Much of the debt is held by high-income households that have the ability to service their debt and many borrowers are already making repayments well above what is required. Furthermore, those on very low fixed-rate loans have some time to prepare themselves for higher interest rates,” explained RBA Deputy Governor, Michele Bullock, to the ESA (QLD) Business Lunch on the 19th of July.
Only the next few months will tell how successful the RBA are in stabilising inflation back within its target range.
