Short-term and long-term interest rates in the US have overtaken those in Australia for the first time in a number of years, with the Reserve Bank of Australia predicted to be on hold for another two years. This makes funding via US interest rates unappealing for investors in Australia, reducing bank margins, and potentially beginning an unwind in the Australian mortgage sector.
Here's how this works:
Loan growth in Australia swamps deposit growth, requiring additional funding needs for Australian banks
The US Federal Reserve raises overnight rates
Attracted by the yields, Australian fund managers move out of cash and deposits into overseas assets
To fund their balance sheets, Australian banks are then forced to increase deposit rates to attract deposits or must turn to money markets...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.