Via AFR: Westpac’s two-year investor principal and interest loans will increase by 31 basis points to 4.39 basis points. Rates on four and five-year rates will fall by up to 10 basis points. Westpac owner-occupier interest-only fixed rates will rise by 13 basis points over one to five-year terms. Its owner-occupier principal and interest fixed rates will
Australian interest rates are set by the Reserve Bank of Australia, an independent body established in 1959. It is guided by an inflation targeting regime that seeks price stability in the 2-3% consumer price index band. The RBA originally also governed prudential policy but following several large scandals and bankruptcies in the late 1990s that role was separated into a discrete entity titled the Australian Prudential Regulation Authority.
The RBA is widely well-regarded despite a recent history of buried corruption allegations and a board of business rent seekers that, in more ethical nations, would not have their hands anywhere near monetary policy levers.
In 1990, Australian interest rates were set at 17.5%. But during the Great Moderation, interest rates consistently fell alongside inflation and oscillated in a band between 1.5% and 7.5%.
Owing to an endowment of resources that proved very attractive to China during the Global Financial Crisis, Australian interest rates did not fall to the lows experienced in other developed markets. Indeed, Australia was the first developed market to raise interest after the crisis though it has subsequently had to lower them again as the commodity boom subsided.
During the 2000s, Australian interest rates began to be influenced by external economic pressures much more than previously. This process was driven by the huge offshore borrowing of Australia’s big four banks in wholesale markets. As their offshore liabilities ballooned, the banks were increasingly exposed to the vicissitudes of far flung markets and investors. This reached a head in the global financial crisis of 2008 when banks faced much higher demands from offshore investors for better risk-adjusted returns, forcing them to break with the Australian cash rate in setting local interest rates.
Ever since, Australian bank have regularly adjusted lending and deposit interest rates unilaterally and independently around the cash rate set by the RBA. These interest rates moves were a constant source of political friction as politicians sought to protect the Australian property bubble.
In 2015, Australian interest rate policy was forced to return to a defacto shared responsibility arrangement between the RBA and APRA. With the lowest interest rates in fifty years, the Australian property bubble inflated to new dimensions even as a global yield trade drove up the value of the Australian dollar, threatening economic growth. Eventually the solution found was to apply macroprudential policy to some mortgage lending so that interest rates could be lowered to take pressure off the currency.
MacroBusiness was the most accurate forecaster on Australia interest rates in the market from 2011 forward. It predicted both the turn in rates downwards in 2011 and has had the most dovish outlook ever since. It also lead the debate around, and implementation of, macroprudential tools in 2014. MacroBusiness covers all apposite data and wider analysis of these issues daily.
The credit-addled AFR comes out swinging for shadow banks today: Shadow banks will protest over the extensive new powers being given to the prudential regulator which may curb their lending, increase funding costs and threaten to exacerbate the severity of any housing market downturn. Big non-bank lenders such as ASX-listed Pepper Group, Resimac, Firstmac, Latitude
Via the AFR: Mr Bowen cited three “compelling” reasons for the new look at the financial service regulator, the Australian Prudential Regulation Authority (APRA) and the corporate regulator, the Australian Securities & Investments Commission (ASIC). These are Australia’s soaring household debt driven by an investor-led property boom; a raft of “ad hoc” powers given to
After last month’s pounding for inventor loans, we’re into phase two today: Bankwest, a subsidiary of Commonwealth Bank of Australia, is slugging existing interest-only owner occupiers with increases of 35 basis points, in the latest move to rein in higher risk loans. The lender is decreasing lending on selected principal and interest products by up
From Guy Debelle today: There are a large number of factors that the Reserve Bank Board takes into consideration in making its interest rate decision each month, both domestic and global. Today I would like to talk about some of the global influences on domestic monetary policy. As you are well aware, the Australian economy
Via Citi: Balance sheet reductions and tapering Since 2008, central bank balance sheets across advanced economies (AEs) have expanded dramatically (e.g. Fed balance sheet went from 6% of GDP in 2007 to around 25% of GDP in 2015 and the ECB balance sheet went from 13% of GDP in 2007 to around 38% currently) and
You know my view but try Deutsche’s excellent Adam Boynton: A funding challenge? AUD/USD has recently broken out of the top of the range it has traded in for over a year. Despite that, and despite the recent RBA repricing in Australia, the 10-year spread to the US remains below the highs of ~55bp seen
Dalian has just flopped into the positive today: With Big Iron down a little: Big Gas is up a bit as one of Australia’s most evil firms, STO, gouges the entire east coast for better profits: Big Gold is still sickening: Big Banks are trampling the APRA pansies: As Big Liar trades sideways: Another ethicists
Yesterday it was the Real Estate Treasurer. Today it is the PM, via AAP: Malcolm Turnbull said the Reserve Bank is sending a prudent signal when it talks about the potential for higher interest rates. …”They are not saying they are going to do that tomorrow,” the prime minister assured Neil Mitchell on radio 3AW
The Citi oil uber-bull is no more: As outlined in Commodities 3Q’17 Market Outlook: Searching for Summer Sunshine, while still constructive on oil, the unanticipated drop in disrupted oil supply (Libya and Nigeria) in parallel to a more productive Permian has led Citi’s Commodities Team to revise down its expected price path for oil through
As expected: This Information Paper sets out the Australian Prudential Regulation Authority’s (APRA’s) conclusions with respect to the quantum of additional capital that might reasonably be expected to be required for the Australian banking sector to have capital ratios that are considered ‘unquestionably strong’. Reflecting the social and economic cost of the global financial crisis,
Via the AFR: In what would be a radical departure from a system that has served since the mid-1990s to curb the rampant inflation of an earlier generation, Professor Mckibbin argues strict inflation targeting has run its course as credible policy making tool. “Inflation has been a good intermediate step because it tied down price expectations
From Bill Evans at Westpac: The most important result from the minutes of the monetary policy meeting of the RBA Board was to finally nominate the Bank’s estimate of the “new neutral real interest rate for Australia”. In other countries it has been recognised for some time that the neutral rate has fallen particularly since
It is Australia’s enduring curse to have a central bank that has no idea what to do about it’s currency. Pretty much every time it speaks the bank drives up the battler and it is no different today in the minutes: Domestic Economic Conditions Members commenced their discussion of the Australian economy by noting that
Via UBS: What will be the economic impact of Amazon? The expected arrival of Amazon in Australia in late-18 will challenge many retailers (see Q-series). Given retail is Australia’s 2nd largest employer, it will probably have enough impact to influence the broader economy. Overall we find total jobs growth may be marginally slower than otherwise,
Via the AFR today: While the conventional view, particularly among the big four banks, is that the Reserve Bank is firmly on hold this year and through most of 2018, Goldman Sachs Australia chief economist Andrew Boak believes the economy could weather a stronger currency following an official rate increase. “It’s hard to find too
The Pascometer does it again. If you want a non-bank interest-only loan you’d better hurry: A new power will be provided to APRA to make rules with respect to lending finance by non-ADI lenders, for the purpose of addressing financial stability risks. APRA will also be provided a power to issue directions to a non-ADI
Via AFR: Interest rates won’t rise until 2018 and even then increases will be slow and moderate because the Reserve Bank of Australia fears igniting the housing “powder keg”, Deloitte Access Economics says. The firm’s latest business outlook acknowledges global momentum to lift rates but insists it will be some time yet before the RBA
Via Deutsche: Business surveys versus consumer surveys The NAB business survey for June shows business conditions at their highest level since 2008. In contrast the July consumer sentiment data shows conditions around long-run average levels (with that long run average including a deep recession). As Figure 1 shows, the ‘gap’ between the two is stark
From Vimal Gore at BT: A change in the trend? Just as the markets had convinced themselves they were in for an uneventful carryharvesting summer, something started to change at the end of the month, with central bank communication seemingly dominating economic data with respect to their impact on market moves. Whilst the theme of
From PIMCO’s Robert Mead: After 25 years of steady economic growth, Australia is on the verge of wresting bragging rights from the Netherlands for the longest period on record without a recession. While this historic event should be celebrated, the future may not be as rosy. PIMCO’s base case calls for Australia to keep growing
Via Deutsche: DB’s forecast for Q2-17 headline CPI at 0.6%qoq/2.4%yoy; average of the core measures at 0.5%qoq/1.8%yoy Our forecast for Q2 headline CPI is for a 0.6%qoq outturn, a touch stronger than the 0.5%qoq the headline prints seen in Q4-16 and Q1-17. This leaves the CPI at 2.4% over the year. We expect underlying inflation