A nice little spruik today from The Pascometer:
There’s been a 10 point easing of monetary policy over the past six to nine months despite the Reserve Bank leaving its cash rate steady.
That’s the extent of bank interest rate discounting that you won’t read about because it’s not put in writing. It’s also why the laggards in abandoning forecasts of another official interest rate cut have been so remiss – there was an unofficial one happening anyway.
Various official figures record banks’ published rates, but not what they are actually charging for loans. Discounting is now so rife that the banks’ “official” variable rate home loan rates are up there with the Easter Bunny, Tooth Fairy and Joe Hockey’s budget crisis.
Given only Tim Toohey and I can possibly be the “laggards” referred to, right back at you and the horse you rode in on, Pascometer!
More seriously, though, we should ask what it means if The Pascometer is shrieking. Given the profound sensitivity of the mechanism to missed turning points it we must conclude that mortgages are about to get a lot more expensive or more cheap.
Australian bank costs of funds are still falling with 5 yer CDS now at around 54bps points and very close to the post-GFC lows hit in 2009 before the European crisis. The mad global dash for trash is bringing in everything with yield on it, more slowly here than elsewhere, but even so lower still funding costs are probably on the cards unless or until volatility returns, my bet being via the China shakeout.
Does that mean there’ll be no rate cut? No, because that is premised on an iron ore shock that will need a lower dollar as well as mortgage rates to hold up the economy.
