The banks hedge their currency risk so extensively that Australia’s improved ledger has little real benefit to them.
Australia’s financial system can withstand surging US rates, the RBA saysdecline in Australia’s foreign liabilities
Dr Smith said the erosion of Australia’s net foreign liabilities was “not necessarily good or bad”, adding that the impulse by Australian banks to hedge debt against currency moves neutralises the risk of a falling $A destabilising the sector.to the present 32 per cent from a peak of 62 per cent in 2016 in her address.
“We think the cost of financing gets higher due to a raft of factors over this next period, and that has implications of every asset class, and in particular, illiquid asset classes,” she said.
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