RBA Sounds Warning on Global Financial Shock Risk

The Reserve Bank of Australia has warned that the country is at risk from a major global financial shock, citing the twin threats of rising interest rates and plunging property prices. The central bank's latest financial stability review highlights the growing risks to global financial stability, with the AI investment boom being a key concern.

The report notes that while households in Australia are well placed to weather the current economic storm, they would not be immune to a sudden collapse of the global AI investment boom. This could trigger 'disorderly asset price corrections', the RBA warns, and Australia is unlikely to escape its impact.

The bank's analysis suggests that even a 20% property price crash would only push about 5% of mortgages into negative equity, but this still poses significant risks for borrowers who took out loans worth close to the value of their properties. The RBA notes that recent buyers who used the government's 5% home guarantee scheme are more likely to be in a vulnerable position.

The bank also highlights the growing risk of cyber-attacks facilitated by AI, and a sudden sell-off in global bond markets as significant threats to financial stability in Australia.