Daily Commentary BY THE CURVE TEAM –

Curve Joins Media Discussion on Rising Deposit and Mortgage Rates

2nd of July, 2018

The debate over the outlook for the domestic economy and monetary policy outlook will resume this week as the data flow resumes and the RBA meets for their July Board meeting. While the RBA isn’t expected to move anytime soon, deposit and mortgage rates are already moving up independently. The Curve team has been at the forefront on discussions as to where things could be heading.

It is now widely expected, and supported by the fall in market pricing, that the RBA is unlikely to move the cash rate for the remainder of this year and next. Tomorrow’s RBA board meeting is likely to see more of the same rhetoric we have received from the RBA and Governor Lowe over the past month, leaving the outlook unchanged.

While the official cash rate is expected to remain on hold for the foreseeable future, persistent pressure in funding markets is having a growing effect on the price banks are having to pay for funding and in turn is impacting mortgage rates.

Curve securities operates at the coalface of funding markets and as such has been heavily involved in the media discussions on what impact the pressure on funding markets is having and what it means for deposit and mortgage rates.

Director of Institutional Markets Peter Sheahan penned a great technical piece last week on the machinations behind the build in funding pressures which you can read here if you missed it. Pete’s analysis was then featured in an article in the Australia Financial Review over the weekend which you can read here.

The increase in funding pressures was most evident last week when we saw rates climb above 3%  out to one year for the first time since August 2016. Curve Securities CEO Andrew Murray outlined in an interview with the Sydney Morning Herald the dynamics at play which prompted banks to start leapfrogging each other to source funds in the lead up to financial year end. You can read the article in full here.

Finally, after commentating on the market forces driving the tightness in funding markets over the past couple of months on Sky Business News, I appeared on Sunrise this morning to talk finance with Kochie. Originally there to talk about the first home buyer super savings scheme the conversation quickly shifted to house prices, the RBA and the outlook for deposit and mortgage rates. You can see the clip here.

Early indications this morning suggest that the pressure in funding markets leading into the end of financial year haven’t eased and deposit rates remain evaluated. We will continue to keep you up to date on how the funding environment evolves and what it means for the outlook for interest rates.

David Flanagan

Director - Interest Rate Markets