SYDNEY, March 19 (Xinhua) -- Australia's central bank said on Thursday that local households and businesses are well-placed to withstand cost pressures driven by the conflict in the Middle East, but warned that the outlook could deteriorate abruptly.

In its first financial stability review of 2026, the Reserve Bank of Australia (RBA) said that the nation's financial system has established a good degree of resilience to navigate the current high-risk international environment.

However, it warned that the global economic and financial outlook could "deteriorate abruptly" for a number of reasons, including the potential for geopolitical tensions to spillover into a severe international shock and the potential for a sharp revision of the outlook for AI investments.

"The conflict in the Middle East could trigger a larger shock that destabilizes the global economy, particularly if supply disruptions to oil and other commodity markets are prolonged," it said.

The report was released two days after the RBA's Monetary Policy Board raised the cash rate target by 0.25 percentage points for the second consecutive month to 4.1 percent.

It noted that the strong financial positions of most Australian households and businesses mean that they are unlikely to be a source of instability despite the interest rate rise.

"Borrowers are generally well-placed to weather cost pressures stemming from the conflict in the Middle East and higher interest payments," the report said.

It said that the share of borrowers at greatest risk of falling behind on their loans is around 0.3 percent. ■