George Tharenou at UBS on the Hayne RC and credit flows:
Implications: RC still consistent with our view of tighter credit ahead
Overall, the RC should not trigger a material acceleration in the tightening of lending standards under way, which should reduce the chance of an imminent ‘credit crunch’. This will likely give some comfort to the RBA. Nonetheless, we think this is unlikely to generate a sudden loosening of lending standards that would drive a reflation of the housing market. We retain the view that the lagged impact of the implementation of verification of living expenses (& income) – with the HEM still used widely for ~half of home loans – will still likely see the total value of home lending & house prices fall further in 2019. We also see debt-to-income limits, & proposed changes to negative gearing & CGT putting further downward pressure on housing, with a negative household wealth effect to see consumption growth moderate ahead. Indeed, the recent sharp weakening in data suggests the economy is clearly slowing, and the falls in home loans and prices have spread to housing activity with a collapse in building approvals. There remains downside risk to our already below-consensus GDP growth outlook. We still think the RBA will significantly downgrade their forecasts this week, and hence make a shift in the dovish direction, with a material likelihood that they remove the ‘next move is up’ guidance. But just how much the RBA shifts its tone will be key to whether the door is open to a rate cut.
