Turnbull opens door to more rate hikes (and bank upgrades)

In The AFR I argue the Turnbull government has (correctly) paved the way for up to 0.40 percentage points of total out-of-cycle bank home loan rate hikes by both firmly backing the Financial System Inquiry's capital/leverage recommendations, and giving APRA discretion to implement them. One silver lining is that Standard & Poor's last week loudly hinted again---following Westpac's $3.5bn equity raise---that this will result in credit rating upgrades for the majors. Contrary to popular myth, the very modest hikes to investment loan rates (save Westpac's 20 basis point increase to owner-occupied products) have not, based on the FSI's published numbers, compensated the majors for the cost of increasing their equity capital ratios by 100 basis points immediately or "at least" 200 basis points over time, which is APRA's latest guidance. The FSI's analysis suggests the majors will have to boost residential rates by about 40 basis points to directly pass on higher equity funding costs to consumers...Read for free by clicking here (VIEW LINK)