Families on low incomes, renters and those with large debts face the prospect of economic challenges over the coming year, the nation's central bank has warned.
In its latest half-yearly Financial Stability Review, the Reserve Bank of Australia said the global economic outlook had improved following a peak in inflation but risks remained high for many local households and businesses.
"This is especially true for low-income households, including many renters, and the indebted households already facing acute budget pressures," the review, released on Friday, said.
"These pressures are expected to gradually ease over the next few years as inflation declines and real incomes rise."
Despite the warning, the RBA painted an upbeat picture for the many households that were managing to service their debts.
A strong labour market, large savings and rising house prices were helping households weather challenging economic times, it said.
"Many households have made adjustments, including reducing their discretionary spending and saving, increasing their hours of work, and some have drawn down on saving buffers," the central bank added.
Borrowers have been sweating on an expected cut to official interest rates after a string of quick-fire rises to stifle inflation, although hopes of a near-term cut took a hit with a surprise jobs boom in official employment data on Thursday.
The drop in the February unemployment rate to 3.7 per cent - down from 4.1 per cent in January - came despite soaring living costs hitting many households and businesses hard.
Rents have risen sharply in most capital cities, driven by an acute shortage of available properties during a period of booming population growth.
In its review, the RBA cautioned businesses that conditions would remain tough due in part to subdued sales growth.
Adding to the pain ahead was the likelihood that strong growth in labour and other costs was expected to only gradually slow down.
On the upside, the RBA said the overall profitability levels and strong balance sheets among businesses reduced the risk of widespread financial stress, while arrears on bank loans to firms were low.
It pointed to issues in China's financial system as a key risk, saying problems there could dent local growth via reduced demand for Australian goods and services.
The central bank has previously warned of slowing growth in China and a sharp deterioration in property market conditions there increasing risks to the Asian superpower's financial system.
The latest RBA release comes after the central bank kept official interest rates at a 12-year high of 4.35 per cent for a third consecutive meeting amid a slowing economy.
The widely expected hold came with a shift in language in a post-meeting statement that edited out an explicit reference to more hikes, interpreted as an easing of a tightening bias and fuelling hopes of rate cuts ahead.
National Australia Bank economists said the RBA review showed households had been resilient to interest rate rises, showing that borrowers could cope with even higher mortgage costs if required.
"The RBA's analysis highlights the role the strong labour market has played, allowing mortgaged households to retain, and find more work (including through more hours)," they said.
