Household debt and interest rates
The Reserve Bank of Australia (RBA) has expressed increasing confidence in the nation’s economic outlook during its latest policy meeting, although it remains mindful of the risks associated with high household debt – including mortgage debt.
The RBA made it clear it’s in no rush to shift interest rates, having left the benchmark cash rate unchanged for the 14th consecutive month at its meeting earlier this month.
Holding the cash rate steady was consistent with sustainable economic growth and attaining the inflation target over time, the board said.
The current strength in employment is expected to bolster household spending. However, household spending would continue to be constrained by slow growth in real wages and high levels of household debt. Wage growth is expected to increase gradually, which in turn is likely to contribute to the gradual rise in inflation, the RBA said.
The Reserve Bank’s minutes showed that domestic household balance sheets remain a central area of concern for policymakers. Household debt has continued to edge higher amid low interest rates and income growth, although members noted that relative to income, borrowing from banks was only slightly higher compared to a decade ago.
High levels of debt mean that households are sensitive to any surge in borrowing rates. Some banks recently increased their calculations for household expenses.
So, whilst rates are low – make the most of it by reducing household debt (non-deductible debt) and building equity. Getting ahead. As you build equity you will then be in position to look at investment and build your overall wealth.
Contact Donna-lee to do a health check and ensure you loans are current and the right structure for where you are now.