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According to the RBA, a series of interest rate increases this year have made Australian Consumers more cautious when it comes to further loans.

People are concerned that by taking on extra debt they may find themselves vulnerable to shocks such as falling income and are exhibiting cautious economic behaviour, RBA Governor Glenn Stevens says.

“We see at present a certain caution in their behaviour – even though unemployment is low, and measures of confidence have been quite high, consumer spending has seen only modest growth,” Mr Stevens told an audience in western Sydney.

“The long downward trend in the saving rate seems to have turned around and I think we are witnessing, at least just now, more caution in borrowing behaviour.

The RBA lifted the cash rate six times between October last year and May to its current 4.5 per cent.

Mr Stevens said the big rise in debt over the past decade had come  mostly from the household sector.  People were borrowing more against their home to fund lifestyle expenses as well as investments.  With several interest rate increases as well as uncertainty with the world financial markets, people prefer to wait and see before taking on extra unnecessary debt.

But he said mortgage arrears rate was low by global standards and borrowers had serviced household debt levels very well.

But the RBA chief said it wouldn’t be wise to let debt levels rise unabated over the years ahead.