Low interest rates have led to rising debt, says RBA

Wednesday 16 June 2010

Article by Mozo

Structural declines in official interest rates have caused households to accumulate more debt, the Reserve Bank of Australia (RBA) has said.

RBA deputy governor Ric Battellino argued that, like countries across the world, Australia has witnessed rises in household debt ratios during recent decades because of financial deregulation and falls in the cash rate.

Between 1985 and 1995, the average cash rate in Australia was 11.4 per cent – a sharp contrast with the average of 5.3 per cent recorded between 2000 and 2010.

In a speech in Sydney, Mr Battellino suggested that debt levels among first home buyers will have to be watched closely as property costs increase steeply in some parts of the country.

"More recently there are some signs of increased housing stress in south-east Queensland and Western Australia, again following sharp rises in house prices in these areas," he said.

Such pressures may encourage more Aussies to compare interest rates in search of cheaper options. Australia’s official cash rate currently stands at 4.5 per cent following six rate hikes since October last year.

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