Jerome Lander

Very interesting and sensible article, which highlights poor policy. "Major banks may end up being the muppets targeted by weaker borrowers as a result of responsible lending regulation being killed off." Equity investors and taxpayers be warned. "Like most stimulus measures, the long term negative consequences outweigh the short term positives."

Damien Klassen

Good points Jonathan. Two thoughts I'm interested in your view on: (1) I'm thinking the term funding facility is now way more important than rates decisions given that it is driving the lowest interest rate available to borrowers (2) given how much lower the term funding facility is vs market rates and how much leverage is already in the system, it seems like this is going to be hard to reverse. i.e. it looks like we will not have markets involved in the pricing of mortgage rates for the foreseeable future

Jonathan Rochford

Thanks Jerome and Damien. Moving the cash rate from 0.25% to 0.10% would not be a big deal, much of the deposit base is already earning zero. However, moving a decent portion of a bank's cost of funds from say 1.00-1.50% to 0.25% is a big deal. I don't see why the RBA couldn't change the new borrowings under the TFF to a market rate tomorrow, or even substantially pull back the volume of it. Major banks are turning away deposits so there isn't a lack of liquidity at this point. Whilst this should happen, it is unlikely as the RBA isn't acting independently or in the long term best interest of the Australian economy. The TFF is primarily helping lower risk home loan borrowers get a lower rate, it does little to shift a business project from being unviable to viable. It is however encouraging savers to be become borrowers, via investment properties, putting something of a floor under the real estate market that has a less rosy future without the population growth of the past and with higher vacancy rates.

Ruth Kassulke

Thank you Jonathan, always interesting to read your analyses