New Zealand borrowers could find themselves growingly financially stressed as households struggle with high debt repayments, the Reserve Bank (RBNZ) warned on Wednesday.
The central bank said in its semi-annual Financial Stability Report it was closely monitoring developments in the Middle East, while noting China's slowing economy created upside risks for New Zealand's commodity prices.
Amid spiralling inflation, the Reserve Bank has been aiming to curb spending by aggressively hiking interest rates. The official cash rate sits at 5.5 percent but there are predictions it could go higher.
"New Zealand households and businesses continue to face higher debt servicing costs. The share of mortgages in arrears is increasing from low levels," the RBNZ said in its report.
It comes as data shows 11.7 percent of New Zealanders are behind on debt repayments - 10 percent year-on-year.
In addition, 1.25 percent of mortgage accounts were overdue, credit reporting company Centrix said.
The RBNZ said higher rates were impacting borrowers and "pockets of stress" would likely grow "in the medium term as highly indebted households continue to be tested by higher debt servicing burdens".
With New Zealand's economy expected to show slow growth in the near term due to higher interest rates, the RBNZ warned this would "create more financial difficulties for some borrowers".
"Overall, financial distress amongst households or businesses is rising from a low level as budget pressures increase for many borrowers," the report said.
"Households have been able to adapt by reducing discretionary spending and working with their banks to manage the increased debt servicing burden.
"Even so, financial stress is expected to rise, based on our projections and those of banks."
