Not just rich to face heat from rate rise

Research shows a growing number of what would be considered poorer households undertaking property investment, broadening the risk when interest rates rise.

New research suggests when the Reserve Bank eventually increases interest rates it's not just the rich who will be feeling the heat.

KPMG Economics has found the bottom 20 per cent of households have recorded the highest rate of growth in investment income, including a greater exposure to activities such as negatively-geared property investment.

"While it is perhaps understandable that the poorest members of our society want to diversify and increase their incomes, this group is the least able to take on the financial risk associated with (negatively) geared investment activity," KPMG Australia chief economist Brendan Rynne says.

He warns households across the financial spectrum have been progressively increasing their debt levels at rates faster than their disposable incomes have grown, a point reiterated in Tuesday's release of the Reserve Bank's April 4 board minutes.

"Any increase in our historically-low interest rates would cause serious problems given the growth of outstanding residential loans over the past decade," Mr Rynne says.

"If the bubble does burst it will not just be the better-off who will be directly affected, the poor will be too."

The central bank says financial stress among households remains contained, although some with home loans appear to have little or no buffer of excess mortgage repayments and could be vulnerable if household income were lower than expected.

That meeting left the cash rate at a record-low 1.5 per cent and a stance the board judged would be consistent with sustainable economic growth achieving the two to three per cent inflation target band over time.

However, it also added an additional line in its conclusion compared to previous statements.

"The board judged that developments in the labour and housing markets warranted careful monitoring over coming months," the minutes said.

JP Morgan economist Ben Jarman thought this "an unusually specific remark".

While housing and labour market dynamics have been pushing in different directions recently - housing too hot, unemployment too high - last week's labour force report showing an employment surge may provide a "glimmer of more upbeat news".

Chris Richardson, an economist at Deloitte Access Economics, does not believe the Reserve Bank will lift the cash rate until next year.

"But rise they will," he said, painting a fairly rosy outlook for both Australia and world economies in his latest quarterly business report.

"All in all, that's a pretty good business backdrop for the globe in 2017," he said.

"But global markets are pricing in more inflation and growth and coming years will see rising interest rates."

However, as Mr Rynne points out, an Australian interest rate increase could come from increases in wholesale funding overseas rather than via a Reserve Bank rate hike.

Domestic retail banks recently raised some mortgage rates independently of the central bank.