Out-of-cycle but not out-of-mind

If you thought ‘50bps out-of-cycle rate hike’ described a breathless bike rider peddling up a mountain, out of synch with everyone else; you were wrong. An ‘out-of-cycle rate hike’ is when banks raise their rates, but the RBA hasn’t. Credit Suisse says we need to get used to this.

Interest rates worldwide are rising, so when banks and other lenders borrow from overseas, they pay more for money. Higher costs are passed to customers. Already, most of the small banks—BOQ, Bendigo etc have raised rates, even though the RBA have frozen the cash rate. For a while, fear and moral pressure stopped the Big Four following, but it didn’t last for Westpac, CBA and ANZ.

Credit Suisse says there’s at least fifty bps worth of out of cycle rises in the pipeline.

 

So how does this housing decline compare to others?

As Melbourne’s house prices drift down like autumn leaves, the clever folk at Core Logic are crunching numbers. Thanks for this…

During the GFC, Melbourne housing dropped 9.4% in a year. The inner east and inner south were hardest hit at -15.9% and -15.5% respectively.

Between November 2010 and February 2012, as housing stimulus wound down, Melbourne went backwards 8.4%. Just like the GFC, greater value areas fell the most. The inner south was hit by -13.1, and the inner east, -12.0%.

Graph By CoreLogic

And so, to today... Values have already sunk 2.9% since peaking in November 2017— inner east down by 6.3% and inner south by 4.5%.

Déjà vu is more fun in Moonee Ponds than Malvern.

RBA stasis

Like a retired dragon, the RBA has held its breath for 25 months in a row.

Now, banks face higher funding costs and dwindling deposits, and are adopting “out-of-cycle” rate rises. Credit Suisse says our current growth and inflation forecasts don’t match reality; and investors are ditching our economy for the USA’s in the quest for higher yields.

With the banks and APRA doing the heavy lifting for the RBA, could the next interest rate move be down? Unlikely, but not out of the question.


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