SYDNEY, Sept 21 (Reuters) - Australia’s top central banker said on Thursday that rising global interest rates would have no “automatic implications” for the country and that policymakers were well aware of the impact of rate hikes on heavily indebted households.
Global rate rises would ultimately flow through to the country but the Reserve Bank of Australia (RBA) has the independence to decide on the timing of its move, Governor Philip Lowe said at a business event in Perth.
Central banks in most major economies have struck a hawkish tone recently. The Bank of Canada has already raised rates twice this year while the U.S. Federal Reserve has largely stuck with its tightening plans, with markets expecting the next one in December.
“An increase in global interest rates would, over time, be expected to flow through to us, just as the lowest interest rates have,” Lowe said.
“Our flexible exchange rate though gives us considerable independence regarding the timing as to when this might happen.”
A 25-basis-point increase in Australia’s cash rate to 1.75 percent is now almost fully priced in by June next year , while two major domestic banks recently changed their views to tip two hikes in the second half of 2018.
The RBA last raised rates by a quarter point in November 2010 to 4.75 percent. There then followed 12 successive easings, taking the cash rate to a record low of 1.50 percent.
Lowe said policymakers will be mindful of the fact that households are highly indebted and any increase in interest rates could hurt economy-wide spending.
Household debt, at a record high, has outpaced growth in incomes.
“Our concern has been that, in this environment, a small shock could turn into a more serious correction as households seek to repair their balance sheets.” (Reporting by Swati Pandey and Wayne Cole; Editing by Shri Navaratnam)