'More volatile' interest rates lie ahead: RBA warning

As central bank economists finalise their growth and inflation forecasts ahead of next Tuesday's RBA board meeting, assistant governor Brad Jones said the nation was likely to be confronted by a new set of risks "for which there is no historical precedent to guide us".

Mr Jones said recent experiences in the United States and Europe where several banks collapsed or had to be rescued showed that in the era of social media, 24/7 banking and global trading, devastating bank runs could rapidly develop and overwhelm even well capitalised institutions.

He said Silicon Valley Bank in California lost 30 per cent of its deposits in a matter of hours, with a further 50 per cent due to be withdrawn the following day, before it collapsed.

"In our current system, any bank would struggle to survive a run of this magnitude," the RBA official said.

Mr Jones said volatile interest rates could also inflame credit risks carried by banks and other lenders.

And he warned of a range of potentially destabilising external threats that could emerge at any time, including serious cyber attacks, the imposition of sanctions on assets or payments, vulnerabilities from storing data in the cloud, the developing use of artificial intelligence and the impact of extreme weather and other climate change-related events.

The RBA official said that increasing the resilience of the financial system "will be critical".

"We can't know which risks will be realised or when, but we can be better prepared for whatever may come our way," he said.

READ MORE:

His comments came as Reserve Bank figures showed borrowing by owner-occupiers has stablised to grow at an annual rate of 4.4 per cent in the past three months, overshadowing lending to investors, which is increasing at a more moderate 3.1 per cent.

But, in a sign that of the financial pressure building on many households, the number of personal loans being taken out is increasing.

ANZ senior economist Adelaide Timbrell said personal credit grew by 0.6 per cent in September after increasing a revised 0.8 per cent the previous month, lifting annual growth to its highest point in more than a decade.

"Cost-of-living pressures, including rising rent payments, may be forcing some more vulnerable cohorts to take on revolving credit," Ms Timbrell said.

Underlining the pressure households are under, separate figures show the mood of consumers has taken a hit from heightened speculation of a November interest rate rise, according to the ANZ-Roy Morgan consumer confidence index.

The index, based on a survey of 1493 people conducted last week, dropped sharply by 3.2 points to 75 points. The reading is the lowest in almost three months.

Ms Timbrell said the result reflected the impact of increased expectations of a Melbourne Cup Day rate hike that followed the release of data showing inflation grew more sharply than had been anticipated in the September quarter.

Markets think there is a better than even chance of rate rise to 4.35 per cent on November 7 and Ms Timbrell said confidence is likely to have been further weakened by sustained high fuel prices.

But she cautioned against assuming the drop in mood will drive consumer spending down this month.

The economist said events like the Black Friday sales and other retailer discounting was likely to entice an uplift in spending this month.

But this amounted to bringing forward purchases rather than driving an overall lift in spending, Ms Timbrell said, adding that the Reserve Bank was likely to "look through strong November retail sales" in assessing whether or not more rate hikes were needed.

"But the strong September [retail sales] result will perhaps give them the confidence to hike rates," she said. "Inflation is uncomfortably high compared with monetary policy forecasts, so there is a high likelihood of a rate hike in November."