From Domainfax: Westpac is lifting variable interest rates on new and existing interest-only home loans, the bank has confirmed. The changes will come into effect December 16. The bank is said to be raising the standard variable rate by 8 basis points on interest-only home and investment loans. It’s only for a small segment of clients
Australian interest rates are set by the Reserve Bank of Australia, an independent body established in 1959. It is guided by an inflation targeting regime that seeks price stability in the 2-3% consumer price index band. The RBA originally also governed prudential policy but following several large scandals and bankruptcies in the late 1990s that role was separated into a discrete entity titled the Australian Prudential Regulation Authority.
The RBA is widely well-regarded despite a recent history of buried corruption allegations and a board of business rent seekers that, in more ethical nations, would not have their hands anywhere near monetary policy levers.
In 1990, Australian interest rates were set at 17.5%. But during the Great Moderation, interest rates consistently fell alongside inflation and oscillated in a band between 1.5% and 7.5%.
Owing to an endowment of resources that proved very attractive to China during the Global Financial Crisis, Australian interest rates did not fall to the lows experienced in other developed markets. Indeed, Australia was the first developed market to raise interest after the crisis though it has subsequently had to lower them again as the commodity boom subsided.
During the 2000s, Australian interest rates began to be influenced by external economic pressures much more than previously. This process was driven by the huge offshore borrowing of Australia’s big four banks in wholesale markets. As their offshore liabilities ballooned, the banks were increasingly exposed to the vicissitudes of far flung markets and investors. This reached a head in the global financial crisis of 2008 when banks faced much higher demands from offshore investors for better risk-adjusted returns, forcing them to break with the Australian cash rate in setting local interest rates.
Ever since, Australian bank have regularly adjusted lending and deposit interest rates unilaterally and independently around the cash rate set by the RBA. These interest rates moves were a constant source of political friction as politicians sought to protect the Australian property bubble.
In 2015, Australian interest rate policy was forced to return to a defacto shared responsibility arrangement between the RBA and APRA. With the lowest interest rates in fifty years, the Australian property bubble inflated to new dimensions even as a global yield trade drove up the value of the Australian dollar, threatening economic growth. Eventually the solution found was to apply macroprudential policy to some mortgage lending so that interest rates could be lowered to take pressure off the currency.
MacroBusiness was the most accurate forecaster on Australia interest rates in the market from 2011 forward. It predicted both the turn in rates downwards in 2011 and has had the most dovish outlook ever since. It also lead the debate around, and implementation of, macroprudential tools in 2014. MacroBusiness covers all apposite data and wider analysis of these issues daily.
From the AFR: Commonwealth Bank of Australia, the nation’s largest lender, is increasing rates on fixed term owner occupied and investment loans by up to 65 basis points, the latest of the majors to respond to rising international funding costs caused by the ‘Trump effect’, tougher underwriting standards and tighter rules. The increase means a
From Westpac’s Bill Evans: The Reserve Bank Board meets next week on December 6. The Board is certain to keep rates on hold despite the prospect of a weak print for GDP growth in Australia in the September quarter. Westpac’s current estimate is 0.2% – the lowest since March quarter 2011. It appears that the
Chris Bowen is talking it up, or is that down, at the AFR: Shadow treasurer Chris Bowen will on Wednesday outline the bleak scenario facing the nation’s banks and heavily indebted households if the AAA credit rating is lost, and blame the Turnbull government for exploding federal debt by $4500 a person in Australia. …According
From the usually pretty good James Aitken via the AFR: The rout in the bond market that was set in motion well before November 8, Aitken says, has further to go; as does the rotation out of bonds, and bond-like stocks, into stocks. …If rates continue to rise, the so-called “expensive defensive” stocks are set
So say the OECD, via the AFR: The Reserve Bank of Australia is being urged by the Organisation for Economic Co-operation and Development to prepare the nation for official interest rate increases in 2017 to avoid a housing market blowout. Lamenting the Turnbull government’s failure to be more bold on tax reform – including by widening
The Aussie bond selloff is still going great guns this morning with yields breaking out to new highs across the curve: Unlike the US, the curve is still steepening here too as the bulk bubble persists: With the two year at 1.89bps it is now tilting towards two rates hikes through 2018 now. More selling
From the AFR: Lenders are raising the cost of buying property by up to 60 basis points as the impact of the ‘Trump effect’ and growing expectation that central bankers are set to end the era of record low rates ripples through global markets. Rising costs of funding debt are also widening the competitive gap
From the RBA’s Christopher Kent: I am grateful for the opportunity to address you all this evening. It is fitting for my final speech in my capacity as the Bank’s chief economist to be in front of such a pre-eminent group of Australia’s business economists. I want to talk about Australia’s economic transition following the
The Aussie “bondcano” has stalled: Not so the US with short end yields right at the verge of a breakout to new highs on daily charts. The monthly is already well clear: Oddly, the US yield curve remains very unconvincing: Less so even than the Australian: Even so, the US/Australia bond short end spread has
Via The Australian: Goldman Sachs has upgraded its Australian dollar and economic growth forecasts. “As we look out to 2017 and beyond, we believe Australia has moved through an important transition point and with it has emerged the prospect of stronger and less volatile real economic growth,” GS economist Tim Toohey says. Mining to be
Still more of a whimper than a bang. Local yields remain firmly in downtrend: Although the curve has steepened sharply offering some hope for better growth: US yields look a bit more promising for a reversal in trend: The curve has bounced but remains unimpressed with the growth outlook despite Trump stimulus: And US/ Australian
Wrong: Rising fixed mortgage rates mean it could be time to lock in record low repayments before it is too late, say mortgage specialists and financial analysts. A rise of just 25 basis points could mean increased interest payments of almost $120 a month for a borrower with an 80 per cent loan-to-value ratio repaying
Fascinating from Macquarie: We have updated our economic, currency and interest rate outlook for Australia following the US election as part of our November Global Macro Outlook. Outlook GDP outlook: We have downgraded our Australia GDP outlook in concert with our US economists; downgrade to the US growth trajectory. The key impact channel
From Credit Suisse: If historical cycles are anything to go by, the recent curve steepening may mean that RBA tightening is just around the corner. But we do not think so. We believe that we are seeing the bond market tantrum of 2012–13 all over again. On that occasion, US term risk premia rose sharply
The AFR is reporting mortgage rate hikes: Firstmac, the nation’s biggest non-bank lender, and nine other smaller lenders are discreetly raising fixed-rate mortgages by up to 45 basis points in a move expected to be followed by others as the “Trump effect” begins to bite local borrowers, according to lenders and market analysts. “International funding
From RBA Governor Backbone Phil last night: It is an honour to be able to address CEDA’s Annual Dinner. It became a tradition under the previous Governor, Glenn Stevens, to speak at these dinners about prosperity: what it looks like and how Australia might continue to secure it in the uncertain world in which we
The entire pet shop is squawking the end of the bond bull market. The latest is Phil Baker: When I first started writing this column for AFR Smart Investor in 2004, the yield on the benchmark 10-year government bond was trading at about 5.12 per cent and investors complained that it was way too low. …It’s been
From Bill Evans at Westpac: The minutes of the November monetary policy meeting of the Reserve Bank Board provided no real surprises. This is to be expected given that we have seen the Statement on Monetary Policy only a week or so ago. The three areas worthy of attention in the minutes are: the Bank’s
US bonds took an absolute pounding last night as markets concluded that a Trump Administration will be inflationary. It sure will be if it cuts the corporate tax rate from 35% to 15%, deports 11 million cheap labour Mexicans and imposes a 45% tariff on China! Though I doubt that’s all going to actually happen,
Cross-posted from Vimal Gor at BT: October was a very volatile month as a number of issues jostled for top billing. First we had the preannouncement of the Brexit Article 50 lodging date from the UK, which saw considerable weakness in Sterling and later in the month a flash crash. The UK is being watched
By Leith van Onselen Friday’s Statement of Monetary Policy (SoMP), released by the Reserve Bank of Australia (RBA), expressed concern at the underlying weakness of the Australian labour market, where nearly all of the recent jobs growth has been part-time and significant underemployment appears entrenched: The unemployment rate continued to decline in the September quarter