Household Indebtedness, the Exchange Rate and Risks
9 Pages Posted: 28 Apr 2005
In this speech, Sushil B Wadhwani argues that the current rate of growth in household debt is unsustainable, but the vulnerability of the economy to rising debt should not be exaggerated. Australia and New Zealand have experienced significant exchange rate depreciations at a time when household debt rose strongly. So far, the impact on consumer price inflation and interest rates in these economies has been modest. He also notes that holding interest rates higher than necessary to hit the inflation target might lead to an even higher exchange rate, which may increase future inflation volatility and weaken the corporate sector.
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