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Despite Australia's rapid housing downturn, which threatens to be the worst in decades, Australia's Reserve Bank believes the main threats to the nation's financial stability come from overseas.
That is the key takeaway from its latest half-yearly Financial Stability Review, released two days after the bank increased its cash rate to a 15-year high.
ABC Business editor Michael Janda joins Alicia Barry on The Business to explain why the RBA is sanguine about the housing market outlook.
"The RBA is saying also rises in real take-home incomes over the past couple of years since the last inflation spike have seen borrowers in a much better position than they were back in 2023-24, the last time interest rates were close to this level at 4.35 per cent."
The RBA is much more concerned about the risks posed offshore. In its review, it flagged: "One possible trigger could be a shift in sentiment towards the AI investment boom, which is increasingly fuelled by expectations of sustained rapid earnings growth and a debt-financing cycle that is becoming more opaque and circular".
The potential for the bond market sell off to become disorderly and regional conflicts were also seen as threats to Australia's financial stability.
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