The review estimates that as of June, fewer than 1 per cent of mortgage borrowers are in negative equity, and the median borrower holds offset or redraw buffers covering over a year of scheduled repayments at current rates. Even a modelled "very adverse downturn" with unemployment at 6.3 per cent and the cash rate at 5.6 per cent would push only 5 per cent of borrowers into higher default risk — similar to levels seen in 2023.
"Low risk premia in major equity and credit markets have contributed to buoyant financial conditions for businesses, but these risk premia could move sharply higher in response to an adverse shock potentially in a disorderly manner," the review warns. It identifies a shift in sentiment towards the AI investment boom as one possible trigger, given that boom's heavy reliance on future expectations.
Overseas, the RBA notes that threats to international financial stability continue to mount, and Australia is unlikely to remain immune. The confluence of intractable conflicts, rapid technological change, and increasing climate-related severe weather could combine to make a system-wide shock more likely and its consequences more severe.