Via UBS: APRA announces removal of 10% investor cap APRA announced the removal of the 10% cap on investment property loan growth for ADIs from 1 July 2018 (established Dec 2014). However this removal only applies to ADIs that can demonstrate: 1) Investor loan growth <10% for the past 6 months; 2) CET1 is on
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.
Via APRA: The 10 per cent benchmark on investor loan growth was a temporary measure, introduced in 2014 as part of a range of actions to reduce higher risk lending and improve practices. In recent years, authorised deposit-taking institutions (ADIs) have taken steps to improve the quality of lending, raise standards and increase capital resilience.
How can the regulators possibly be trusted to fix the banking system? Via Banking Day: The Reserve Bank of Australia, its subsidiary Note Printing Australia and their associated entity Securency, are all back in the news. From Monday, May 14 there will the first of potentially multiple trials this year of the alleged operators of
Via the excellent Damien Boey at Credit Suisse: We’re over-valued, over-supplied and in a perpetual supply-side labour shock. Our export income is deflating and so are our asset prices. There is only one way that Australian inflation is going and it ain’t up. Damien Bory at Credit Suisse has some charts on it today: CPI
Not unreasonable stuff from Bob Katter: Need for this bill It is obvious that Australia’s Big Four banks and Macquarie are devoted solely to their own usurious profits at the expense of the population as a whole. We must therefore break up these “vertically integrated”, self-centred and crime-ridden behemoths and return to the sort of
A couple of charts from Damien Boey at Credit Suisse show the problem. Ever since the terms of trade began the great correction in 2011, ending the RBA’s thirty year mining boom in three years, it has been behind the deflationary curve: This has meant that Australia has carried a giant legacy of a bloated
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released the Consumer Price Index (CPI) data for the March quarter 0f 2018, which registered both soft headline and underlying inflation. According to the ABS, headline CPI rose by 0.4% in the March quarter, below the 0.6% recorded in the December quarter: However, on
Via Christopher Kent, Assistant Governor (Financial Markets): Introduction I’d like to thank the Housing Industry Association for the opportunity to speak to you about the role of interest-only loans. Mortgages on interest-only terms have become an increasingly prominent part of Australian housing finance over the past decade. At their recent peak, they accounted for almost 40 per cent
Via the AFR: ANZ, the nation’s third largest mortgage lender, is boosting scrutiny of clients’ personal identity, income, qualifications and capacity to repay loans amid evidence of wide-scale identity theft. The bank, which is the most dependant of the major banks on brokers for distributing mortgages, is circulating “policy updates” about minimum evidence of borrowers’
Via Ian Rogers at Banking Day: The Australian finance crisis of 2018 is roaring, producing an immediate and lasting credit crunch. All banks are tightening scorecards to lift expenses and frame credit analysis on realistic incomes, a secular change sure to impede system credit growth. The combined work of the Hayne Royal Commission and APRA
Mr Leon Berkelmans, Senior Manager in the Domestic Markets Department at the RBA, began the great softening up process yesterday: The Reserve Bank is not planning on engaging in quantitative easing anytime soon, so please do not form the impression that at the next board meeting they will be discussing it. They will not. But, just
Breaking from ME Bank ME’s standard variable rate for existing owner-occupier principal-and-interest borrowers with an LVR of 80% or less, will increase by 6 basis points to 5.09% p.a. (comparison rate 5.11% p.a.^). Variable rates for existing investor principal-and-interest borrowers will increase by 11 basis points, while rates for existing interest-only borrowers will increase by
Via Bill Evans: The minutes of the monetary policy meeting of the Reserve Bank Board for April contained few surprises. Arguably of most interest was the inclusion of “in current circumstances, members agreed that is was more likely that the next move in the cash rate would be up rather than down”. Our analysis indicates
DXY was down last night: AUD was stablish: Gold firmed: Oil fell: And remains vulnerable with a huge speculative long: Base metals lifted: Big miners fell: EM stocks struggled: The EM junk tide is definitely going out. A slowing China signal? Short end Treasury yields marched higher, the curve flattened again: Not so bunds: Stocks
Via the AFR: The nation’s third-largest residential property lender is warning brokers that their future mortgage recommendations will need to satisfy strict new internal guidelines and ‘external’ scrutiny, a reference to regulatory or possibly legal action. “We recognise the need for trust in brokers and look forward to public policy discussions about measures that will
Ahead of the May budget Gunnamatta spoke with Leith van Onselen and David Llewellyn-Smith about the economic outlook and the unfolding Australian economic narrative. In a wide ranging discussion Leith and David cover Australia’s reliance on commodity exports and the implication a subsiding global commodity market has for this dependence, as well as the potential
Via a panicky Domainfax and following this week’s WBC tightening: Tom Crowley, National Australia Bank’s acting general manager of home lending, said the bank was collecting “granular” details of a customer’s expenses, and it was keen to work with regulators and other lenders to improve their assessments of borrowers’ finances. …Managing director of mortgage broker Homeloanexperts.com.au,
From the RBA’s new Financial Stability Review comes a look at interest-only loans: Interest-only (IO) loans account for a sizeable and growing share of total housing credit in Australia, now representing around 23 per cent of owner-occupier lending and 64 per cent of investor lending (Graph B1). IO lending has the potential to increase households’
Phil Lowe late yesterday: I would like to thank the Australia-Israel Chamber of Commerce for the invitation to speak at this lunch today. It is great to be back in Perth again. I look forward to learning more about how the Western Australian economy is going. Later this year, the full Reserve Bank Board will
This is big, via the AFR: Home loan applicants at Westpac will have to reveal spending on everything from pet care to tax and toiletries, under a tough new “responsible lending” regime being introduced from next Tuesday. …”We are making changes to understand the granularity of our customers’ expenses and liabilities,” the bank is telling
By Leith van Onselen The ABC’s business editor, Ian Verrender, has written a ripper article today explaining why Australian mortgage rates might soon start to rise: Official rates may not be going anywhere any time soon… But tremors are roiling through global money markets that will flow directly through to higher domestic rates. Given the
Via Bloomie: The spread between Australian and U.S. bond yields has reached its most extreme and will narrow again as Aussie wages and inflation spur an earlier start to monetary tightening Down Under than most anticipate, according to Bank of America Merrill Lynch. …Morriss’s expectation for Australia’s official cash rate to be increased in the
Evil Anna was in full flight yesterday: The Australian Banking Association chief executive Anna Bligh has urged the federal government to ensure that any regulatory changes made in the aftermath of the Hayne royal commission remain balanced or risk unintended consequences. “Tightening access to small amounts of credit can push more vulnerable customers out of
The AFR did a whack panel on the banks yesterday: If the morning session of The Australian Financial Review Banking and Wealth Summit was dominated by the issue of how to ensure senior bank executives get their pay docked when they’ve overseen major stuff-ups, the afternoon’s sessions looked at whether housing is the banks’ new
Via the excellent Damien Boey at Credit Suisse: March was all about the spread and trade scare March was all about interpreting widening interbank credit spreads, and making guess work of trade protectionism. The mainstream view seems to be that trade protectionism is the fat tail risk driving markets at present, and that interbank credit
Via the RBA just now: At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent. The global economy has strengthened over the past year. A number of advanced economies are growing at an above-trend rate and unemployment rates are low. The Chinese economy continues to grow solidly, with the authorities
Via Bill Evans at Westpac: The Reserve Bank Board next meets on April 3. There is almost certain to be no rate move coming from that meeting. Market Pricing and Analysts Forecasts Market pricing for the RBA has moved significantly over the last six months. Last September markets were predicting nearly two rate hikes by