SYDNEY May 4 The Reserve Bank of Australia
(RBA) is worried about the possibility of future sharp cuts in
household spending if there was a deep correction in property
prices, the head of the central bank said on Thursday.
RBA Governor Philip Lowe said high and rising household debt
was making monetary transmission weaker. The RBA held official
cash rates at a record low 1.50 percent on Tuesday for the ninth
straight month as it balances the risk of rising household debt
against subdued inflation and wages growth.
"Given the high levels of debt and housing prices, relative
to incomes, it is likely that some households respond to a
future shock to income or housing prices by deciding that they
have borrowed too much," Lowe said at a business lunch in
"An otherwise manageable downturn could be turned into
something more serious."
The household debt to income ratio - at a record high - has
made the economy less resilient to future shocks, Lowe added.
Lowe also said that households should be prepared for an
increase in interest rates in Australia "at some point."
"This is not a signal about the near-term outlook for
interest rates... but rather a reminder that over time we could
expect interest rates to rise, not least because of global
developments," he said.
"We should not expect interest rates always to be this low."
(Reporting by Swati Pandey; Editing by Sam Holmes)