Credit conditions still favourable but on the move
Recent months have seen the favourable lending environment for households begin to tighten. Inflation concerns have bond markets pricing in an earlier cash rate move than the RBA has signalled. While the cash rate remains unchanged, fixed rate mortgage rates have risen in the past few weeks and regulators are gearing towards further macroprudential intervention in 2022.
The impact of these changes is at the margin. It is not until increases in the cash rate flow through that we expect a more meaningful curtailing of credit availability. Our expectation is for the cash rate to lift gradually from Q1 2023.
What you will learn in this research report:
- Australian government bond yields have risen over recent weeks. Driving much of this move has been a shift in interest rate expectations, with market participants now expecting a cash rate rise in 2022.
- In response to low interest rates, strong growth in housing credit and increased household indebtedness, there has been an increased focus on macroprudential policies (MPP) both internationally and in Australia.
- The stronger than expected inflation data appears to have accelerated the RBA’s timetable for raising rates, dropping its guidance of rate lift off in early 2024 but holding the line that it expects rates will be on hold well into 2023.
Firms must brace for higher ‘new normal’ construction material prices
New research by Oxford Economics suggests that construction materials prices have shifted permanently higher due to the shocks of the past couple of years. Project managers and investors should anticipate costs being at least 15-20% higher in 2024 and onwards than in 2021.Find Out More
New Activity Trackers suggest momentum is waning
After a choppy first quarter of GDP data, our novel Activity Trackers (which incorporate proprietary daily sentiment data from Penta) suggest that economic momentum in EM Asia is on a softer trend in Q2 (at least outside of China) supporting our view of easing underlying inflationary pressures and diminishing appetite for further rate hikes.Find Out More