The guts and the grit displayed by the US Federal Reserve this week went largely unnoticed in Australia. The RBA has a lot to learn from Jerome Powell of the US Fed at that art of real economics . While the RBA still wants to keep the juice flowing with low interest rates – the US Fed has in spite of strong criticism from POTUS has gone ahead and raised the official interest rates. That is a big deal at a time when the yield curve went negative and a stock market running sh*t scared.
The markets have been way too long fed on easy money and its got addicted to it . While the need for de-addiction calls for a rehab time out , the US Fed is unwavered by the tantrums of a spoilt child(stock markets).
Meanwhile in Australia the Bank Bill Swap Rate (BBSW) – which governs the inter bank funding cost has been rising(please refer to the below pic) .With the US rate hike done and dusted , there is higher chance of the BBSW going up in the coming weeks. With more being that 40% of mortgage funding $$$ in Australia coming from the US wholesale funds market – the flow on effect cannot be avoided. At time when saving rates are at a record low in Australia , the rate hike in the US will add to costs of an already cash strapped Australian banking system.
The Australian banks already battered by the BRC(Banking royal Commission) will have the contend with higher BSBW and falling house prices. The only silver lining for the banks has been the holding up of the AUD at the 70 cent mark.Any further slide in the AUS will push up the USD balance owed by Australian banks.
Since the last time(Aug 29, 2018) that westpac and others raised rates – there has been 2 rate hikes from the US Federal reserve(Sep 13 and Dec 19). No doubts that there has to be flow on effect on Australian mortgages.Time will tell when the Australian banks will end up having to raise rates again.
Unlike the last 12 months or so — this time around the situation is different .The BRC is over and the chances of negative publicity of rate hikes has waned. The banks will be feeling more confident this time around in addressing their balance sheet than other issues.