The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Tuesday, May 8, 2012

As predicted: CBA slashes fixed rate home loans

Well, you did not need to be much of a brainiac to work this one out. The decline in the three year government bond rate to sub three per cent--and record historical lows--is allowing banks like CBA to slash the cost of their fixed-rate (as opposed to variable rate) home loans. The RBA has decided that the economy needs to be stimulated by monetary policy, so this is absolutely consistent with what the central bank wants to achieve. The monetary policy-mortgage market nexus in Australia really is the inverse of what you find in the US and much of Europe: almost everyone has variable rate loans that broadly price off the central bank's cash rate. The good news is that about 30% of the Aussie banks' funding comes from longer-term wholesale markets that use, unsurprisingly, longer-term government bond rates as their benchmarks. So while credit spreads are a bit elevated right now these are being more than offset by lower underlying government bond rates (or declining "yields"). Which is precisely why the CBA can happily slash their fixed-rates. Although it does not make a world of difference to the housing market, it certainly assists at the margin. I have not checked the latest stats, but I think the share of fixed-rate borrowers has recently risen to double digits...