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Free AccessMNI INSIGHT: RBA Alert To Lending Rate Rise As Funding Cost Up
--RBA Policy To Discuss Rising Money Mkt Rate, Funding Cost Impact
By Sophia Rodrigues
SYDNEY (MNI) - The Reserve Bank of Australia is alert to the risk of an
increase in lending rates if banks start passing on increases in funding costs
and, if this comes to pass, it would delay a hike in the central bank's cash
rate.
This could be a key reason why Governor Philip Lowe didn't sound more
hawkish on interest rates (when he spoke in Sydney Tuesday), despite the RBA
being more optimistic about growth and inflation prospects.
However, any rise in mortgage rates is unlikely to be big enough to change
the direction of the cash rate and so the next move in the cash rate remains up,
although early next year may be a more appropriate timing.
The quarterly Statement on Monetary Policy, due Friday, is likely to
contain a detailed discussion on recent developments in the money market and how
this affects banks' funding costs.
Money market rates have risen in Australia in recent months due to a rise
in the cost of U.S. dollar funding, not for reasons directly related to RBA
monetary policy.
Initially it was unclear whether this rise was temporary or permanent. But
now the RBA is of the view that at least some of the increase is persistent.
This has a more direct impact on short-term funding costs for domestic banks,
and also on their longer-term funding which is linked to the BBSW (bank bill
swap rate).
In early 2017, the 3-month BBSW rate traded around 26bps above the RBA cash
rate, but it touched a high of 2.08% recently which is 58bps above the cash
rate, and was last trading around 2.02%.
So far none of the major banks have pushed their mortgage rates higher,
despite pressure on their funding costs. There is speculation that banks are
resisting such a move because they are under increased public scrutiny due to
the Royal Commission investigating bank conduct.
But the longer it takes for the higher rates to wind back, the more
impatient banks will get, and they will eventually push up lending rate.
ANZ's Chief Financial Officer Michelle Jablko may have hinted at this in an
interview published by the bank's digital publication 'bluenotes' following the
release of half-yearly results on Monday. Janlko said there there would be
pressure on margins if funding rates didn't ease.
"Short term funding costs have really picked up in recent weeks," Jablko
said.
"All things being equal if I look at it today and say if rates stayed where
they were today and our balance sheet mix stayed, it would have an impact in the
second half."
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$,MX$$$$]
To read the full story
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Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.