From the AFR:
The government’s response to the financial system inquiry endorses its recommendation that the major banks must have “unquestionably strong” capital in the top quartile of internationally active peers and implicitly paves the way for rate increases.
As a capital importing nation with banks reliant on offshore funding and focussed on residential mortgage lending, the government said “Australia’s financial sector…needs to be stronger than those of comparable economies”.
By giving the Australian Prudential Regulation Authority discretion to implement the FSI reforms as it sees fit, the government backs APRA’s arguably even tougher stance on bank capital and the importance of introducing a “leverage ratio” back-stop.
Hard to argue against it. If I’m right that the cash rate cannot go lower than 0.75%, and we can expect the banks to absorb at least half of the remaining rate cuts in the period ahead, then it is fair to say that Australian mortgage interest rates are at, or certainly close to, the bottom.
The bubble has met its match.
