The end of the decades-long credit frenzy, coupled with increasing competition among banks, has helped reduce market interest rates this year, said the Reserve Bank of Australia (RBA).
Ric Battellino, Deputy Governor at Australia’s central bank, said the renewed tendency of Australian households to borrow less and save more in light of the recent global financial crisis has reduced the cost of loans and ignited competition between lenders.
“As a result, the interest rates on new loans are now around 10 to 15 basis points (BPS) lower than they were early in the year,” said Battellino.
Although the country was spared from the worst effects of the financial crisis, Australian households have become cautious of high debts. Local households are keen on avoiding the factors that sent the UK and the US into recession, resulting in high unemployment and forcing billion-dollar bailouts from banks.
“After a 10 to 15 year period during which households increased their gearing and reduced their rate of saving, they have returned to a more conservative and traditional, pattern of financial behaviour,” he said.
Banking analysts expect banks to be under pressure, as businesses and mortgage lending moderates.
Battellino said that although the country’s shift in borrowing behaviour is difficult for businesses, it places “spending and financing on a more sustainable path.”
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