Powered by MOMENTUM MEDIA
subscribe to our newsletter

Mortgage customers could benefit from global shift

Expected monetary policy adjustments in overseas markets could make it easier for banks to pass on cuts to the cash rate from the RBA, according to one economist.

Speaking to Mortgage Business, AMP Capital’s chief economist, Shane Oliver, has said that expected rate cuts from the Federal Reserve in the United States and from the European Central Bank (ECB) could alleviate funding costs pressures for Australia’s banks, reducing their exposure to mortgage rate cuts.  

Both the Federal Reserve and the ECB have signalled that they will look to lower rates in the coming months, with Mr Oliver expecting the former to drop rates twice in 2019.

Following the Reserve Bank of Australia’s (RBA) decision to cut the official cash rate for the first time in two and a half years, some lenders opted not to pass on the cut in full, citing margin pressures and considerations for deposit customers.

However, Mr Oliver has stated that rate cuts from foreign central banks could ease margin pressures via a lower bank bill swap rate.

Advertisement
Advertisement

“Last year, the big concern was that global monetary policy was tightening the cost of funds for the banks, which was going up,” Mr Oliver said.

“[As a result], banks had to raise mortgage rates by 10 to 15bps around August-September.

“Now, with the reversal by the Fed and the ECB, that results in further downwards pressure on banks’ funding costs, to the extent that global funding becomes cheaper and of course that has some impact on our bank bill swap rates.”

He added: “It could lower funding costs for the banks, which makes it easier for the banks to pass on lower mortgage rates.”

Bank margins are set to be tested again in the coming months, with further monetary policy adjustments from the RBA expected.

PROMOTED CONTENT


In minutes released from the RBA’s board meeting, the central bank acknowledged that further cuts to the cash rate are “more likely than not”.

The RBA’s unusually strong signal to the market prompted observers to predict back-to-back rate cuts in July and August, as part of an aggressive strategy to stimulate the labour market.    

The central bank’s next monetary policy board meeting is scheduled for next Tuesday (2 July).

[Related: RBA faces dilemma as global markets turn]

Mortgage customers could benefit from global shift
Shane Oliver
mortgagebusiness

If you’re feeling overworked and overwhelmed in this fast-paced mortgage market, it’s time to make some changes, and the Business Accelerator Program can help! Early bird tickets are on sale now. Work smarter, not harder, this year.

Charbel Kadib

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

Latest News

The major bank has confirmed that it will not proceed with the demerger of its New Zealand business. ...

The Senate has passed a bill that will establish an authority that ASIC and APRA are accountable to, two years after it was recommended by t...

The big four bank has said that it has increased its serviceability floor rate to ensure it continues to lend responsibly, and has predicted...

How long do you think it should take to discharge a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.