##ilience in meeting loan repayments, the increase in indebtedness over the past 15 years does mean that households are now significantly more sensitive to changes in interest rates. the bis central bankers ’ speeches proportion of household income devoted to debt servicing is relatively high, even though housing interest rates are only a little above average ( graph 4 ). it is therefore not surprising that households have become more cautious. household saving increased markedly in the wake of the global financial crisis, and it has remained high in the face of the continuing problems in european financial markets and rising global inflationary pressures ( graph 5 ). graph 4 household interest payments * per cent of household disposable income graph 5 household saving ratio * per cent of household disposable income bis central bankers ’ speeches in the current environment, it is unlikely that households will have much enthusiasm for increasing indebtedness. the most likely scenario is that household borrowing will continue to grow at a relatively subdued rate for some time yet. from the reserve bank ’ s perspective, this would be a welcome development. it would allow the period of consolidation in household balance sheets to continue and would avoid households adding to pressures in the economy at a time when its productive capacity is already being stretched by the resources boom. while most of the growth in credit in the lead - up to the global financial crisis was driven by households, a substantial increase in business credit also occurred in the years immediately before the crisis. this expansion in lending was mainly to large businesses and, while some of it was used to fund real investment, a substantial amount was for financial activity. as often happens during a credit boom, a disproportionate amount of the lending that took place over that period came from second - tier lenders. business credit provided by foreign banks, for example, rose by about 80 per cent between 2006 and 2008, while business credit provided by regional banks rose by 60 per cent ( graph 6 ). a lot of this was directed to commercial property. graph 6 business credit by source january 2006 = 100 since the global financial crisis, the inevitable correction has occurred. business credit has fallen and those lenders that expanded the most have since contracted the most. similarly, sectors such as commercial property that increased gearing the most have since experienced the sharpest increase in problem loans and the sharpest contraction in credit. through all this, credit to the small business sector has been much more stable ; it increased by less through the boom and has continued to

philip lowe : opening statement to the house of representatives standing committee on economics opening statement by mr philip lowe, governor of the reserve bank of australia, to the house of representatives standing committee on economics, sydney, 11 february 2022. * * * chair members of the committee good morning. my colleagues and i look forward to the day where we can return to in - person hearings. we hope that will be for the next hearing. i would like to focus my introductory remarks today on three issues : the economic recovery ; the outlook for inflation ; and the rba ’ s monetary policy decisions. the economic recovery at the time of the previous hearing in august, we were in the early days of the delta lockdowns and were expecting a strong bounce - back when the restrictions were eased. this bounce - back did eventuate and the economy had strong momentum late last year. then omicron hit, which has been a significant setback for many people and businesses. yet, once again, the economy has proven to be resilient. despite the disruption caused by omicron in january, we still expect positive growth in gdp in the march quarter, with spending and hours worked already recovering. reflecting this resilience, the outlook for the australian economy has improved since we last met. we estimate that gdp increased by around 5 per cent over 2021 and are expecting gdp growth of around 4¼ per cent over 2022 and 2 per cent over 2023. this outlook is being underpinned by a number of factors. these include household balance sheets that are in generally good shape, with households having accumulated more than $ 200 billion in additional savings over the past two years. an upswing in business investment is also under way and there is a large pipeline of residential building to be completed over the next year or so. macroeconomic policy settings are supportive of growth, with governments planning significant infrastructure spending and monetary policy remaining very accommodative. the resilience of the economy is evident in the australian labour market, where the outlook has continued to improve. a year ago, our central forecast was that the unemployment rate would be close to 6 per cent at the end of 2021. the outcome was much better than this : 4. 2 per cent. there has also been a welcome decline in underemployment as many people have been able to obtain additional hours. labour force participation has increased and the share of the working age population with a job has never been higher than it is now