The AFR is reporting this afternoon that the ECB’s decision to charge European banks negative interest rates for funds deposited with the central bank will likely lower Australian banks’ wholesale funding costs and potentially reduce mortgage rates:
…analysts believe Europe’s lenders will also be encouraged to invest in higher-returning assets overseas, including debt issued by big corporations, especially banks.
With local banks’ wholesale funding costs already at their lowest levels since the global financial crisis, such a shift is likely to further drag down the cost of raising money from global investors.
Macquarie analyst Mike Wiblin said the move to introduce negative interest rates could drive more European bank investors towards bonds or mortgage-backed securities issued by Australian banks, pushing down the sector’s funding costs.
If ever there was a time for APRA and the RBA to begin implementing macroprudential controls on mortgage lending, it is now. The last thing Australia needs is a further escalation of mortgage competition, lower lending standards, and further upward pressure on both house prices and the Australian dollar.