Prepare for the straw that breaks the camel’s back. Via the excellent Damien Boey of Credit Suisse:
The limits of pass through
We have just published an article on “The limits of pass through” (attached). It explains why we think the economy is in for a combination of tighter lending standards and out of cycle rate hikes, lowering our benchmark for neutral rates. We argue that there are at least 50bps worth of out of cycle rate hikes in the pipeline, and that the pipeline of out of cycle hikes is likely to continue getting larger for as long as the RBA cannot adequately explain wide interbank credit spreads. This article expands on previous work by:
1. Constructing a more explicit “levels” model of the mortgage spread to the cash rate. Previously, we introduced a dynamic, or “changes” model.
