The decision of the Reserve Bank of Australia (RBA) to lower interest rates resulted to a failure for possible credit growth in the country since households are racing to finish off their debts rather than adjust their monthly payments, Australian Banking and Finance reported.
When the decision was made, RBA expected that demand for credit will be stimulated. What happened was the opposite since households were more conservative after the global financial crisis.
When the decision was made, RBA expected that demand for credit will be stimulated. What happened was the opposite since households were more conservative after the global financial crisis.
Supposedly, when interest rates were decreased, households will also lower down their mortgage payments to save some cash. But ever since the global financial crisis, households are racing to lower or finish off their mortgage so that they will be readier when a similar crisis happens.
From October 2011, the extent of prepayments of housing credit growth was decreased by at least 0.5 to 0.75 percentage points. According to a research made by Marc-Oliver Thurner and Alexandra Dwyer, credit should be increasing especially when interest rates fall down.
But the research mentioned that the last two years showed a modest growth when it comes to housing credit. This was compared in the increase in the value of housing loan approvals.
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