Reserve Bank assistant governor Christopher Kent also said home loan borrowers had built such a substantial mortgage buffer during the pandemic that it was affecting the impact of higher interest rates and effectively meant those borrowers could go a year without making any extra mortgage payments.

For those on variable rate loans, borrowers with lower incomes added $17,000 on average to buffers in offset and redraw accounts over the past three years; this compared with the average of $39,000 accumulated by the highest income borrowers.

But he warned that global conditions were strained following the failure of the US-based Silicon Valley Bank which forced the US Government to step in and guarantee deposits.

The Swiss Government has also ploughed billions into the Credit Suisse deal to provide liquidity and help deal with any losses UBS may incur through the takeover.

The instability has rocked global share markets and the ASX was heading for further falls on Monday.

“Volatility in Australian financial markets has picked up but markets are functioning and most importantly, Australian banks are unquestionably strong _ the bank’s capital and liquidity positions are well above APRA’s regulatory requirements,” Kent said.

“Even if markets remained strained for a time, Australian banks (bond) issuance will continue to benefit from the strength of their balance sheets.”

However, he said it was likely their funding costs would increase.

He also admitted that the high number of people who had fixed rate loans had slowed the impact of higher interest rates. Almost 40 per cent of outstanding credit was in fixed rate loans in 2022 and that has fallen sharply to about 30 per cent. The RBA has forecast it was also likely to drop for about 5 per cent in the near future.

Another factor was the high savings rate, or mortgage buffer, built up over several years.

“To give a sense of the size of this additional buffer, if borrowers decided not to make any extra mortgage payments for a time, it would take around four quarters for the additional buffer built up during the pandemic to run down,” Kent said.

“Indebted households’ willingness to draw on these and other savings buffers will have an important bearing on how the economy evolves from here.

“If borrowers allow these additional savings to run down even to some extent, it will help to sustain their current spending in an environment of higher interest rates and cost-of-living pressures. That is, they can choose to delay some or all of the effect of the cash flow channel of monetary policy on their spending for a time. Whether they will do this, however, is uncertain. ”

Despite the two factors creating a lag in the impact of interest rates, Kent said higher they were working in other areas such as making it more attractive to save, rather than spend.