The Reserve Bank has noted how low funding costs have led Australian banks to compete for home lending more actively than in previous years.
The head of the Reserve Bank has pointed to historically low interest rates as ‘the most remarkable feature’ of the global economy, which has led to cheaper home loans for Australian borrowers.
In his opening statement to the House of Representatives Standing Committee on Economics yesterday, RBA governor Glenn Stevens said the most remarkable feature of the international scene at present is the exceptionally low volatility of financial prices – the lowest observed over the past 25 years for sovereign bonds, equities and foreign exchange.
“Yields on sovereign debt of the major countries are also very low, the lowest on record in some cases,” Mr Stevens said.
“Spreads on investment grade and financial corporate bonds have reached multi-year lows and in Europe yields on so-called ‘peripheral’ sovereign bonds have in some cases fallen below previous historic lows,” he said.
While he asserted that the reasons for these trends could be “debated at length”, Mr Stevens said it is clear that a combination of forces has resulted in financial conditions remaining “remarkably accommodative”.
“This has been reflected in a decline, at the margin, in interest rates in Australia, even though the Reserve Bank has not changed the cash rate for a year,” Mr Stevens said.
“Australian governments have continued to borrow at or around the lowest rates since Federation,” he said.
“Similarly, funding costs for financial institutions have been declining.
“This, and an increase in competition to lend in an environment of still fairly moderate credit growth, has contributed to a reduction in the rates on housing and business loans.”
Not only are funding costs low, but banks want to lend and are competing to do so more actively than they have for some years, Mr Stevens said.