Global Monetary Tightening

Australian banks’ “continued reliance” on wholesale funding from overseas institutions may see pressure on local interest rates.

One reason is “global monetary tightening”, especially given the European Central Bank (ECB) is starting to wind back the massive monetary stimulus which it pumped into the European economy since the global financial crisis.

In addition, Fitch expects the US Federal Reserve to lift interest rates four times this year.

America’s official rate is currently sitting in the 1.25-1.5 per cent range, so even one rate hike would mean US rates would be more competitive than Australia’s (currently at 1.5pc).

Stable customer deposits are the Banks preferred funding source.

Should the Banks be unable to raise sufficient deposits they will need to access the more expensive option of global wholesale funds.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

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