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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, General

Westpac’s decision last week to increase variable home loan interest rates for all owner occupiers and investors took the market by surprise. The AUD fell by almost half a cent to 73 cents and the 3-year bond yield temporarily fell to 1.99%, the lowest level since December last year. Westpac based its decision on the sustained increase in money market funding costs that remain around 20bps above the average of the last three years.

You get the feeling that it is only a matter of time before the other major banks announce a re-price of their home loan rates by a similar magnitude despite the attention focused on the banking sector from the Royal Commission. History shows that once one of the major banks moves, the others follow in fairly quick succession.

Although the RBA will once again leave the official cash rate at 1.5% at their monthly board meeting on Tuesday I get the feeling that RBA Governor Philip Lowe has started to send some subtle signals that the RBA is warming to the idea of raising rates. That said however, I doubt that they will pull the trigger before late next year, if not sometime in 2020 as there is no urgency at the moment to make any move. The RBA is not going to lose much sleep over Westpac’s decision and won’t seek to offset this out-of-cycle rate hike by moving rates itself.

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Source: Rural Bank


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