coverage ratio ratio ratio * leveraged asx - listed non - financial corporates. interest coverage ratio calculated as ebitda / interest expenses. sources : morningstar ; rba. tighter financial conditions are likely to have had a stronger effect on businesses with higher pre - existing leverage and generally weaker balance sheets, as well as smaller businesses which do not have access to wholesale funding markets. indicators of business financial stress generally remain low, although many businesses are experiencing challenging conditions and the share of businesses entering insolvency has increased since early 2022 ( graph 11 ). this is particularly so for businesses in the construction and hospitality sectors, although this follows a period of very low insolvencies owing to pandemic - related support measures. most of these firms entering insolvency are small businesses with little debt. [ 12 ] rates of non - performing loans have also increased slightly but remain low by historical standards. graph 11 company insolvencies share of total businesses operating, quarterly % % 0. 15 0. 15 0. 10 0. 10 0. 05 0. 05 0. 00 sources : abs ; asic ; rba. r e s e r v e b a n k o f au s t r a l i a 0. 00 conclusion looking across a range of measures shows that monetary policy tightening has led to restrictive financial conditions. however, the extent of this varies across different sectors and also within sectors. households have been responding to higher interest rates. while households with mortgages are significantly affected, and quite directly, consumption growth is weak for most people. smaller businesses, and businesses with higher leverage, are also facing financial pressures, much more so than many larger businesses. notwithstanding these differences, restrictive financial conditions are helping to slow the growth of demand, thereby bringing the level of demand into better balance with supply. this is contributing to the decline in inflation, which is to the benefit of all australian households and businesses. endnotes [ * ] i thank sue black, shan jayawardhana, dmitry titkov, peter wallis, charlie wenk and ada zhou for their great assistance in helping to prepare this speech. i say ‘ one way to gauge ’ because the stance of monetary policy is somewhat broader than the current level of the cash rate and incorporates expectations for future cash rates as well as the size and composition of the rba ’ s balance sheet. however, in normal times, the level of the cash rate relative to the neutral rate is a reasonable

housing prices – it remains a bit below average. and after deducting offset balances, household credit growth has been flat for the past year or so. moreover, the level of household credit ( net of offset accounts ) has declined as a share of household disposable income. the decline in this measure of household indebtedness is apparent in several other indicators. for example, average loan - to - value ratios for new loans have declined over this phase of monetary policy tightening. also, loan discharges from property sales have increased, and by more than the rise in new lending ( which is shown as commitments in graph 7 ). these trends are likely to reflect incentives to reduce or limit indebtedness in response to higher interest rates. r e s e r v e b a n k o f au s t r a l i a graph 6 household credit % % growth * household household net of offsets % % per cent of annual hhdy * * housing net of offsets personal * six - month - ended annualised ; dashed average post - 2008 calculated gross of offsets. * * household disposable income. sources : abs ; apra ; rba. graph 7 housing loan discharges * quarterly ; seasonally adjusted $ b $ b value commitments discharges % ratio of discharges to loan commitments % * discharges and commitments are net of external refinancing. sources : abs ; apra ; rba. increases in the cash rate have led to tighter financial conditions for businesses increases in the cash rate have also flowed through to higher business lending rates and higher corporate bond yields, although pass - through has varied across different markets ( graph 8 ). average rates on large business loans have increased by more than 425 basis points over the tightening phase, compared with around 310 basis points for small businesses. however, small businesses continue to face substantially higher interest rates than their medium and large counterparts. large businesses with access to wholesale funding markets have benefited from favourable conditions in those markets. in particular, corporate bond yields have risen by less than the rise in riskfree yields over the tightening phase because credit spreads have narrowed noticeably. graph 8 cost of business debt % % business lending rates * small business medium business large business % % corporate bond yields * * 5 - year yields 3 - year yields * average variable interest rate on credit outstanding. * * for bbb - rated non - financial corporations. sources : apra ; bloomberg ; rba. despite