The rally in market rates along with a recent improvement in funding costs has enabled Australia’s ADIs (not just the majors) to offer long-term fixed rates below 5% to home loan borrowers.
But in what could be a warning that these deals below 5% may prove ephemeral, ANZ interest rate strategist Zoe McHugh wrote yesterday in a note to clients that the recovery in consumer confidence suggests Australian bank bill rates are too low.
By that, McHugh means that any notion of an RBA easing are wrong and that perhaps, as we highlighted both from Paul Bloxham at HSBC and Scott Haslam from UBS yesterday, the Australian economy is doing well and more likely in need of higher rates in time.
McHugh focused on a brilliant quote from former US Treasury Secretary Larry Summers who said “the cheapest form of stimulus is confidence”.
McHugh highlighted that now that the ANZ weekly consumer confidence index was back above its “long-run average”, Australia’s “bank bill curves continue to look too flat”.
“With underlying inflation in the middle of the RBA’s target band, as the economy recovers, bond yields will need to continue to rise as they still look too low despite the sell-off from recent peaks,” McHugh wrote.
It might be time for me to fix my home loan.
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