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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General

Don’t cry for me Argentina…although a little overused on social media already, I had to repeat the line here after Australia beat the Pumas early this morning to set up a final of the Rugby World Cup with arch-rivals New Zealand. So, while next Tuesday sees the “race that stops the nation”, that is, the Melbourne Cup, less than 72 hours beforehand, we’ll have a sporting event that threatens to stop the whole of the southern hemisphere.

Enough of sport though. Last week saw the market drastically reprice RBA expectations after firstly Westpac and then the other three major banks raised variable mortgage rates by 15 to 20 basis points. The RBA Board meeting clearly pre-dated these increases, although the announcements would not have come as too much of a surprise to the RBA. Governor Stevens noted in July that higher mortgage rates were to be expected given the increased capital requirements for the major banks.

Markets are now asking the question whether the RBA will move to offset this “tightening” by cutting rates as early as the next Board meeting on 3 November. With a neutral monetary policy stance retained in their latest statements, there is little to mount a case for an imminent rate cut. The RBA is more likely to wait for more information on the effective change in financial conditions before making a decision. However, with all the majors raising their mortgage rates, a late 2016 RBA rate cut cannot be totally ruled out – although it then begs the question, how much of this official cut would be passed on?


To add to the uncertainty for the RBA, the People’s Bank of China announced a 25 basis point cut to their official cash rate over the weekend (in an attempt to stimulate growth) on top of the European Central Bank’s comments late last week that they will look to ease at their next meeting, while the US is about to start raising rates.


Source: Rural Bank


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