There is certainly a shift in views of the interest rate environment. Earlier in the week, the guys at JP Morgan reviewed their position, and are calling for three more rate cuts over the course of the year, expecting the next one to come in next month.
It’s a sentiment shared with Bill Evans at Westpac. He said, way back in July, that we’d see 100 basis points worth of cuts over the next 12 months.
Rate cuts will be dependent on the European situation, and with Belgium the latest to have its credit rating downgraded by Standard & Poor’s overnight, it’s obvious we aren’t going to see a solution soon. More concerning was Germany’s struggle to raise fund from bond investors despite having the world’s top credit rating.
If you’re thinking, how does this all affect me? Well, if you’ve got a home loan, the chances are increasing that your mortgage rate won’t fall as quickly as anticipated.
Speaking to the Weekend Australian, ANZ CEO and Australian Bankers Association head, Mike Smith said that we’re in the middle of a pretty serious crisis right now and that there is a credit crunch in Europe now which is spreading to Asia and will spread here too.
That implies that it’s harder for our banks to secure funding, or at least, more expensive. NAB last month blamed Europe for one of the reasons why I didn’t pass on the Reserve Banks fall 25 basis point interest rate cut. That’s despite more of us saving, meaning there’s a greater deposit of funds for the banks to access and lend from, instead of having to rely on overseas funds.
And all signs are pointing, that the other banks may use that excuse too if the RBA decides to cut again next month, or in February (the RBA board goes on holiday in January).