Australian savings cut by debt, rates rise: economists

Raising levels of Australian consumer debt and another wave of interest rate rises could soon cut into people's savings, economists said on Friday.

Economist Helen Kevans from JP Morgan, a financial holding company, said there was now a good chance that the Reserve Bank of Australia (RBA) would lift the cash rate by 100 basis points over the next year.

"Interest repayments as a percent of disposable income will be back up around that 12 percent level, which is a big concern," Kevans told Australian Associated Press.

She said the current level of interest repayments as a proportion of disposable income was about 9 percent.

Meanwhile, the most recent Dun and Bradstreet (D&B) survey showed consumer debt rose to record levels in spite of improving economic conditions in the June quarter.

The figures caused concern that Australians are facing financial difficulties and further pain could be on the horizon.

"With these interest rate burdens going to record highs, there' ll be a lot of stress on households," Kevans said.

But she said an increase in the employment rate in 2011 leading to a boost in levels of disposable household wealth "should manage to offset some of the burdens of rising interest rates".

However, chief economist Adam Boyton from Germany's Deutsche Bank, downplayed Dun and Bradstreet's assessment.

Boyton said concerns about the vulnerability of the household sector in Australia were "somewhat overblown".

"To my mind there's reasonable evidence that households have undertaken some degree of balance sheet repair of their own accord over the past year or so," Boyton said.

Disposable income levels for households would most likely tighten as interest rates increased in the year ahead, he said.

Source: Xinhua