sydneyinterestrate increases in australia are now three times more potent than they were three decades ago thanks largely to higher household debt across the country according to shane oliver chief economist at amp capital if the reserve bank of australia were to raise its official cash rate to 25 from 085 currently a near doubling in debt interest payments as a share of household income would result and take them to where they were in 2013 after which economic growth was relatively sluggish he said in a note a rise in the official cash rate to around 4 which is the money markets expectation for next year will push interest payments to about 12 of income from around 52 he said rba gov philip lowe said last week that market pricing for interest rates is not particularly likely still australias central bank is battling surging inflation which is expected to rise to 7 by the end of this year requiring the rba to tighten rates much more a policy meeting of the rba next week is expected to deliver a further 50basispoint increase adding to the 50basispoint rise at the start of june and a 25basispoint rise in may at a time of falling real incomes due to costofliving pressures the outlook implies a significant hit to household spending power is likely mr oliver said debt levels in australia have gone from the bottom of the global pack to near the top in 1990 there was on average 69 australian dollars us4778 of household debt for every a100 of average household income after tax today it is a187 of debt for every a100 of aftertax income while the household saving rate remains high and many households have built up cash buffers and are ahead on their mortgage payments there is a vulnerable group in the economy most of which are new entrants to the housing market he said this group would experience a sharp rise in their mortgage payments if mortgage rates rose by just 2 percentage points most economists and the market expect more than this while the dollar value of debt is concentrated among higherincome households it is high among 30 to 40yearolds or recent home buyers with young families it is this group who are most likely to be the marginal consumers who will likely have to cut their spending in response to rising interest rates and costs he said while rising asset levels and wealth indicate that the rise in household debt is not as bad as it appears its rise still leaves many households more vulnerable to rising interest rates than in the past mr oliver said amp expects home prices to fall 1015 over the next year or so which risks driving negative equity for recent lowdeposit home buyers