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Reserve Bank of Australia Governor Philip Lowe has reminded the public to make sure their finances can withstand any lift in interest rates, as a lower-rate environment may change “at some point.”
“It is nearly eight years since the previous increase in interest rates by the RBA. This means that many borrowers have never experienced a rise in official interest rates. They have mostly experienced lower rates,” said Lowe in a speech during the launch of ASIC’s National Financial Capability Strategy 2018.
As Australia’s economy improves, Lowe said it’s more likely for rates to go up. While some may not welcome the change, he pointed out that doing so would be a sign that things are returning to normal.
A recent global study has warned that “low for long” approach could have negative implications on overall economic and financial stability. According to the report the Global Financial System (CGFS) of the Bank for International Settlements (BIS), the practice may even dampen the profitability and strength of financial firms.
“We all need to prepare for that rainy day. It rarely makes sense to take all the credit that you are offered, whether on a credit card or when you apply for a loan. Many Australians with mortgages find the best way of building buffers is to put any spare money into their offset account,” Lowe said.
