RBA Sees Contained Risks Amid Interest Rate Hike

RBA Governor Michele Bullock has defended the latest interest rate hike to 4.6%, saying it's necessary for all Australians, including those without loans. The Reserve Bank of Australia (RBA) reported that less than one percent of borrowers are facing negative equity despite soaring interest rates.

The RBA's half-yearly Financial Stability Review said most Australians have sufficient cash flow and savings to mitigate downturns. Housing prices could fall 20% from current levels, but only around five percent of mortgages would fall into negative equity, according to the bank's modelling.

Risks associated with businesses are also considered contained by the RBA. The report notes that above-average cash buffers have surged post-pandemic, and total insolvencies have fallen to about average over the past year. However, they remain elevated among specific sectors such as hospitality, construction, and transport.

The RBA is concerned with finance infrastructure globally, citing interconnected systems and varying levels of preparedness that expose international markets to heightened risks. Prolonged outages could have dire consequences for payments infrastructure, the report warns.