Australian interest rates

The RBA is very likely going to run out of cash rate easing options over the next year, with the final four cuts taking us to 50bps and the effective “zero bound” for the cash rate.

Via Martin North: The Bank Bill Swap Rate continues to track down, which means that Banks are sitting on considerable funding advantage, which is being used to discount attractor mortgage rates.

Via Bill Evans at Westpac: Earlier this week Westpac moved forward its forecast for RBA cash rate cuts from the original forecast on February 21 of cuts in August and November to June and August.

No sign of slowing today though the market is massively overbought: It’s worth looking at durations in absolute terms to see the boom.

Domain probes the question today with Shane Oliver: “They just got it wrong,” he said.

Nobody else is going to say it so I had better.

Over the past year there has an ongoing debate about Australia’s little financial crisis.

It was always going to end this way.

Via the excellent George Theranou at UBS: With actual mortgage rates of ~4% + the new 2.5% buffer, the assessed borrowing rate is likely fall to ~6.5%, below the ~7¼% floor, ‘notionally’ increasing borrowing capacity by ~8%.

Via CBA: We expect the RBA to cut the cash rate by 25bp to 1.25% on 4 June 2019.

Via the Governor: Thank you for the invitation to speak to the Economic Society of Australia.

Via the RBA: International Economic Conditions Members commenced their discussion of the international economy by observing that global growth had eased in the second half of 2018 and looked to have continued at around this more moderate rate in 2019.

Via Damien Boey at Credit Suisse: Against the odds, the LNP has won the Australian Federal election.

The short answer is no.

Terry McCrann that is: The Reserve Bank will cut its official interest rate from its already record low of 1.5 per cent to 1.25 per cent at its next meeting Tuesday fortnight.

Via Damien Boey at Credit Suisse: The slowing in growth of aggregate hours worked is very consistent with what leading indicators have been telling us for some time. Our proprietary labour market leading indicator has historically been a reliable predictor of trend growth in hours worked since 2000 (please see our recent article for details).

Let me run you through some charts from the NAB business survey to make the point.

The headline numbers are poor for the NAB business survey: Most significantly, the employment index is now low enough for higher unemployment.

Via Bill Evans at Westpac: The Reserve Bank’s May Statement on Monetary Policy (SMP) shows substantial reductions in the growth and inflation forecasts. GDP growth (to one decimal point) is now forecast at 2.6% for 2019 and 2.7% for 2020.

Chris Joye on Aussie QE: Because most of our borrowers pay “variable” as opposed to “fixed” rates of interest, the cost of borrowing in Australia prices off short-term (variable) rather than long-term (fixed) interest rate benchmarks.