Australian mortgage rate hike too small to trigger policy rate cut

Over the past two weeks, all Big Four domestic lending banks in Australia have raised their variable mortgage rates by between 15bp and 20bp. This undeniably has the effect of tightening monetary conditions. 

"The question is whether this is a sufficiently large tightening to warrant a policy rate cut by the RBA. It might not", says Societe Generale. 

The actual tightening of overall financial conditions is smaller than the roughly 17bp average increase by the Big Four because not all loans are mortgage loans, though at 61% of total credit (including securitisations) they do account for the bulk of credit. 

Still, this means that effective financing conditions in fact tightened by only around 10bp. Moreover, although variable rate mortgages very much dominate, there are also fixed-rate mortgages in Australia which, according to local broker research, account for about 15% of all mortgages. 

"So, the effective hike in interest rates in Australia owing to these changes is rather less than 10bp, and that assumes that all other banks also move in line with the Big Four. This is too minor a change to trigger a rate cut", added Societe Generale.