June 15, 2010 - 1:34PM
Financial deregulation and structural declines in the cash rate have led to increased household indebtedness, the Reserve Bank of Australia (RBA) says.
But while evidence suggests increased levels of debt have not left Australian households over-exposed, pockets of stress remain, RBA deputy governor Ric Battellino said on Tuesday.
"All countries have experienced rises in household debt ratios over recent decades," Mr Battellino said in a speech in Sydney.
Between 1985 and 1995, the average cash rate in Australia was 11.4 per cent, compared with the average 5.3 per cent between 2000 and 2010.
The current cash rate is 4.5 per cent following six rate hikes since October last year that took the rate off a 49-year low of three per cent.
However, Mr Battellino said first home buyers will bear close watching in the future while pockets of stress have emerged in Western Sydney following a sharp run up in house prices between 2002 and 2003.
"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.
Mr Battellino said despite increased levels of debt, evidence suggests Australian households are servicing it well.
"If we look at the distribution of debt by income, we can see that the big increase in household debt over the past decade have been at the high end of the income distribution.
Mr Battellino was speaking to the Financial Executives International of Australia at the law firm Clayton Utz.
The event was closed to the media and an embargoed copy of the speech was provided.
This story was found at: http://news.smh.com.au/breaking-news-business/low-interest-rates-lead-to-debt-rba-20100615-ybxl.html