Interest Rates

The chances are strong that following some small reductions in one- and two-year fixed mortgage rates this week, further reductions will happen soon. The Reserve Bank is clearly frustrated at behaviour by banks, writing the following in their discussion of the expansion of their money printing operation
“We expect to see retail interest rates decline further as lower wholesale borrowing costs are passed through to retail customers. It remains in the best long-term interests of the banking sector to promptly maximise the effectiveness of our LSAP programme.”
It sounds like something an authoritarian state might say to a wayward country.
In response to the RB’s comments, the sharp jump in their quantitative easing plan size, and the fact that they have not yet 100% ruled out a negative cash rate, this week wholesale interest rates have fallen slightly. The three-year swap rate has decreased to 0.14% from 0.24% while the five year rate has declined to 0.22% from 0.37%.

Tony Alexander

Independent Economist and Speaker