monetary policy is not supposed to be able to affect real variables – like real interest rates – on a sustained basis. presumably, changes in risk appetite, subdued growth and expectations that growth will continue to be subdued have also played a role in lowering real rates. interest rates and growth this brings into focus the really critical question : what are the prospects for sustained growth in the future? relatedly, what expectations about rates of return in the future are reasonable? the real economy needs to generate decent returns on the real capital stock that are then matched ( risk - adjusted ) by the yield on financial assets. the financial assets are, in the end, just paper claims on that flow of real returns – directly in the case of private sector obligations and indirectly for government obligations, which rely on being able to tax growing private incomes. if the real economy can ’ t perform to provide real returns to capital, there is nothing to back higher yields on financial assets. in that world, nominal and real yields on bonds would remain extremely low, the income being generated by those working with the capital stock would struggle to fund the benefits required by retirees through dividends and returns on bonds and bank deposits. governments may not receive all the revenue they need to service their obligations. on the other hand, the stronger the prospects for long - term growth and good returns on the real capital stock, the smaller those problems will be and the more we can expect that, sooner or later, the yield on financial assets will be higher, in line with those real outcomes. which outcome will it be? the more pessimistic are moving closer to the position of “ secular stagnation ” : that situation where the desire to save is so overwhelming and the apparent opportunities for profitable investment so weak, that real interest rates cannot equilibrate saving and investment for the system at positive rates of interest and full employment. the result is that the ex ante excess saving leads to a sustained below - full - employment equilibrium. the concept arose originally in the 1930s, but has recently been articulated by lawrence summers as a description of the current environment. 2 i still find this a bit too pessimistic, because i struggle to accept that today, to an extent virtually unprecedented in modern history, ingenuity, technological development, entrepreneurial drive and opportunity for improvement are so weak – so unprecedentedly see summers l ( 2016 ) ‘ the age of secular stagnation : what is it and what to do about it ’, foreign

of variable - rate loans ( excluding split loans ) as at may 2022. sources : rba ; securitisation system another issue that we have been thinking about is whether borrowers that took advantage of very low interest rates on fixed - rate products in recent years are particularly susceptible to higher interest payments when fixed - rate terms expire. the extremely low interest rates on these products through 2020 and 2021 led many people to take them up, resulting in the share of housing credit on fixed mortgage rates increasing from 20 per cent at the start of 2020 to a peak of nearly 40 per cent in early 2022. the majority of currently outstanding fixed - rate loans are due to roll off within the next two years, with the greatest concentration of loans due to expire in the second half of 2023 ( graph 10 ). so these borrowers are shielded for the time being from interest rate rises. graph 10 projected expiration of fixed - rate loans * outstanding loans as at may 2022, by expiry month % % average lending rate scenario variable rate * * balance - weighted fixed rate % % share of total fixed - rate loans * * * m j s d m j s d m j s d * * * assumes fixed - rate loans are not repaid early or refinanced. assumes future variable rates increase by 300 basis points to mid - 2023 ; timing of rate increases broadly informed by market expectations. * * * another 13 per cent of fixed - rate loans will expire beyond 2024. sources : rba ; securitisation system what is the potential impact though when they do roll off? using information from the securitisation database, and again using some assumptions about the path of interest rate increases, we can get an idea of the magnitude of the impact on borrowers'interest payments as their fixed rates roll off. assuming all fixed - rate loans roll onto variable mortgage rates and new variable rates are broadly informed by current market pricing, estimates suggest that around half of fixed - rate loans ( by number ) would face an increase in repayments of at least 40 per cent ( graph 11 ). borrowers with fixed - rate loans that are due to expire by the end of 2023 would experience a median increase of around $ 650 ( or 45 per cent ) in their monthly repayments. this is slightly more than the rise in payments that variable - rate borrowers would experience over this time. these scenarios suggest large increases in debt - servicing