Australian households are equipped to withstand another global financial crisis, says the Reserve Bank of Australia.
As the $1.3 trillion mortgage market dominates Australian banks’ balance sheets, the Reserve Bank has conducted a stress-test to assess how Australian households will withstand major economic shocks, such as a recession.
The report, which modelled scenarios similar to what Australian experienced during the global financial crisis, revealed that Australian households have a “high level” of resilience.
“The results from the two stress scenarios considered – both of which incorporate a substantial increase in the unemployment rate and a substantial decline in asset prices – imply a high level of household financial resilience and limited expected loan losses for lenders,” the RBA
According to the report, lower interest rates still have the power to offset any negative effects on households.
“This is due to the offsetting effect of lower interest rates, highlighting the potential for expansionary monetary policy to offset the effect of negative macroeconomic shocks on household loan losses.”