SYDNEY, May 4 (Reuters) - 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 Brisbane.
“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)