RBA caution over household debt - AmpGFX

The RBA has expressed considerable concern over the high level of household debt (190% of income), more so since Governor Phil Lowe took the reins last year, notes the analysis team at Amplifying Global FX Capital. 

Key Quotes

“This has prevented them from cutting rates further over the last ten months. The case for cutting rates has faded as this year has progressed; with a recovery in the global economy and improvement in domestic activity indicators.  However, doubts remain over how Australia will cope with higher rates.  High indebtedness and high house prices make the economy more vulnerable than most to higher interest rates.  As such, the RBA is likely to proceed cautiously when it comes to possible rate hikes in future.”

“Nevertheless, recent indicators suggest that high indebtedness and some moderate increases in loan servicing costs are not unduly dampening overall activity.  The RBA may need to float some trial balloons as the year progresses, raising awareness that rates may be raised sooner rather than later.”

“They chose not to this month, perhaps aware that the market was ready to pounce on even subtle shifts in stance, in light of the sudden rise in global yields in recent weeks, albeit still from low levels.  The RBA is still hoping that rate rises abroad, particularly in the USA, will help cap the AUD.  Should the AUD fall, they might be more comfortable warning.”