The Reserve Bank's interest in this area springs from both its responsibility for monetary policy and its mandate for financial stability. From the perspective of monetary policy, high debt levels will influence the calibration of interest rate changes. The more debt households have, the more sensitive their cash flow, and hence consumption, is likely to be to a rise in interest rates.
People thought that the debt to GDP ratio would keep on rising forever and that debt servicing could become an intolerable burden. Neither of these two eventualities occurred. As Graph 8 shows, the debt to GDP ratio stabilised at around 40 per cent, which is high by world standards but not excessively so (for example, New Zealand, Canada and Sweden all have higher rates).