From Deutsche: Our pick for Q1-17 headline CPI is for a 0.6%qoq/2.2%yoy outturn. We expect the average of the core measures to print at 0.4%qoq/1.8%yoy. We see headline CPI printing at 0.6%qoq in Q1-17 (due 26 April), and for the average of the core measures to print at 0.4%qoq. Despite an apparent rise in wholesale
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.
Drop your linen and start your grin’n, the Great Australian Property Crash has begun. Why so? Regulators have declared war on the Australian property specufestor and he is going to be hunted to extinction. From ASIC yesterday: Mr Medcraft refused to be drawn on what the answers were to the housing dilemma in Sydney and
Via the AFR comes the usually excellent Alex Joiner: “We’ve brought forward all the housing consumption we can – that’s reflected in debt,” said IFM Investors chief economist Alex Joiner. “And that debt has accumulated rapidly, ahead of incomes.” Unlike many other advanced economies that hit the wall after the 2008 global financial crisis, Australian
Leith and I have been debating internally if Australia is on the verge of a psychological break this morning. There is a lot of coverage in the press about the housing bubble, APRA and RBA tightening. Having thought this through I’ve come to the conclusion that it’s the wrong question to ask. More apposite is what
Aussie bonds were given a decent boost by the RBA today, very much along the lines of MB expectations, as bonds were bid across the curve: The long end was especially firmly bid as markets realise that the window for RBA hikes is closing fast as a confluence of economic negatives bear down on Australia
From the Bubble Managers: At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent. Conditions in the global economy have improved over recent months. Both global trade and industrial production have picked up. Labour markets have tightened in many countries. Above-trend growth is expected in a number of advanced economies,
The Australian operates in bizarro world today: Australia’s growing dependence on borrowing to buy and build homes has prompted warnings the economy faces a serious shock, increasing the pressure on regulators to act carefully before further tightening the screws on the fragile property market. …Economist Saul Eslake told The Australian yesterday: “A house price fall
From the pointless RBA shadow: Australia’s major banks raised mortgage interest rates, citing an increase in global financing costs. Coupled with an unexpected rise in the domestic unemployment, low inflation, and a dearth of other economic news, the CAMA RBA Shadow Board remains convinced that the cash rate should remain at its current level. It
From Moody’s: Moody’s Investors Service says that delinquencies for Australian auto loan asset-backed securities (ABS) and residential mortgage-backed securities (RMBS) increased in January 2017 when compared with December 2016. Delinquencies for the month of January 2017 also rose year-over-year. Specifically, 30+ day delinquencies for Australian auto loan ABS transactions rose to 1.80% in January 2017
The absolute madness of the energy crisis is on display today as Morgan Stanley mulls inflation pass-through to food: Energy costs are escalating rapidly in Australia which we think will lead to cost pressure and potentially a return of food inflation. Consumers will also face higher energy costs, which could dampen sentiment, in our view. The
UBS thinks it’s meaningful: APRA focuses on new ‘limit’ on interest-only, down to 30% share (now ~40%) APRA announced additional macroprudential policy tightening for housing. The most binding constraint was a new cap on the flow of interest-only (IO) home loans to only a 30% share, which is well below the decade average share of
From Louis Christopher at the AFR: “It’s weak. This is not going to be enough to slow down the Sydney and Melbourne housing boom. The boom continues if this is all it is,” Mr Christopher said. …”What we were thinking they may well have been doing was slowing down the overall investment lending credit growth limit to 5 per cent
The Reserve Bank Board meets next week. It is certain to keep rates on hold. The minutes of the March board meeting were less upbeat on the economy than we had seen in previous assessments from the Governor. While I was meeting with customers and officials in South East Asia and China, my colleagues assessed
From S&P: The number of delinquent housing loans underlying Australian prime residential mortgage-backed securities (RMBS) increased in January to 1.29% from 1.15% in December, according to a recent report by S&P Global Ratings. Arrears typically increase between November and April, affected by spending on Christmas and summer holidays. However, the magnitude of the month-on-month increase
Via Marty North: Genworth released their notice of the 2017 Annual General Meeting today, to be held on 11 May 2017. They are reacting to the changing market conditions, with lower LMI volumes at lower LVR’s. Of note is Resolution 4 which asks shareholders to approve an on-market share buy-back of up to 125 million
From UBS: Overview This week we update our Australian Financial Conditions Index, first published last year, and also launch a replica FCI for New Zealand. Our FCIs – an average of financial indicators (such as lending rates, the bond curve, the exchange rate and asset prices) – lead GDP growth by about 3 quarters in
From CBA: Commonwealth Bank has today announced an increase in its Variable Home Loan interest rates and Viridian Line of Credit products effective Monday 8 May 2017: – The standard variable rate for owner-occupier home loan customers paying principal and interest will increase 3 basis points to 5.25 per cent per annum. – The standard
From ANZ: Principal and interest owner-occupier home lending Variable interest rates for the 80% of owner-occupier borrowers who repay principal and interest on their standard variable home loan remain unchanged at 5.25%pa. Investor home lending The variable interest rate paid by property investors will increase by 0.25%pa from 5.60%pa to 5.85%pa effective 31 March. Interest-only
From Chris Joye: The once market-orientated RBA now hopes that the bubble blown by its cheap money policies can be cauterised by getting the Australian Prudential Regulation Authority to re-regulate lending via “macroprudential” constraints on credit creation. Setting aside the fact that the RBA years ago warned that such controls may be ineffective when interest