The Reserve Bank of Australia raised its cash rate to a 15-year high of 4.6 per cent on Tuesday, taking it beyond the previous post-COVID peak of 4.35 per cent in 2023 and 2024.
Two days later, the central bank released its Financial Stability Review, setting out how higher rates are reaching households that remain among the world’s most indebted.
At the end of June, less than 2 per cent of variable-rate owner-occupier mortgage borrowers had a cash flow shortfall, the RBA estimated. It expects that share to rise to 2 per cent, or slightly above, in coming months as the cash rate has risen to 4.6 per cent.
The comparison with the earlier inflation surge is stark. Cash flow shortfalls were close to 5 per cent in 2023 and 2024.
The RBA said the median borrower held offset and/or redraw buffers sufficient to cover more than a year of scheduled mortgage repayments at current interest rates. Less than 1 per cent of borrowers were in negative equity.
It also pointed to a rise in real household disposable income per capita since a recent low point in 2023 and 2024.
Those buffers sit alongside a rapid housing downturn that threatens to become the worst in decades.
The review also identified concerns beyond household mortgages, including circular financing and increasing borrowing to fund the AI boom, as well as a spike in government bond yields.
Michele Bullock, the RBA governor, made comments to the media on Tuesday that were interpreted as reducing the likelihood of a further rate increase in November.
The RBA Monetary Policy Board will announce its next interest-rate decision on November 3.
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