When Will The Interest Rates Curve Turn?

History indicates when interest rates are low, consumers borrow more, property prices increase and the possibility of the bubble bursting never comes into consideration.

New lending commitments on the increase

It appears 2014 is already trending similar to 2013. The average loan size for new lending commitments over 2013 showed a 3.6 % increase. For the March quarter 2014, it will not be surprising if commitments have increased further. The average loan size in Australia in the December quarter of 2013 was $341,971 compared to September quarter of 2013 – $326,318 – an increase of 0.95%.

In addition, the average proportion of family income to meet loan repayments for the December quarter 2013 was 30.8% Australia wide, an increase of the previous quarter of 1%.

RBA recently said on August 2014

The Reserve Bank of Australia this week reiterated a point made in its recent statement on monetary policy that lending rates in Australia have fallen this year despite the cash rate being on hold. According to governor Glenn Stevens, this development was “more than half a monetary policy easing”. His message was consistent with recent communication. In our view this confirms a further easing of monetary policy remains off the table: “the Board has been mindful of…the very considerable limitations for monetary policy in fine-tuning economic outcomes over short periods”. On business investment, the governor highlighted the tentative nature of the recovery, adding this is a relatively normal situation for this point in the economic cycle. He reiterated many businesses were more focussed on returning capital to shareholders and less on investing. “Any plans for growth that might be in the top drawer remain hostage to uncertainty about the future pace of demand,” Stevens said -

See more at: https://bluenotes.anz.com/posts/2014/08/de-facto-monetary-policy-easing-confirms-next-rate-move-is-up/#sthash.SK29AwRp.dpuf