Swift movements in the market began on December 1 after the central bank revealed the minutes of their meeting. These shake-ups were fueled even more after RBA Deputy Governor Ric Battellino’s speech.
Battellino said that rates can remain at its present rate by February due to the monetary policy’s positive stance that brought it to normal range. This comment by Battellino that he stated at the Australasian Finance & Banking Conference in Sydney surprised many market movers and this could trigger a slump in the Australian dollar under the US$90 level.

He also added that though the cash rate is still at a low 3.75 per cent, monetary policy was back at normal because the deposit’s current level, as well as the lending rates for business and housing, made the cash rate at 4.75 per cent before the crisis.

The RBA Deputy Governor’s remarks were delivered an hour after the Australian Bureau of Statistics released data that economic growth during the third quarter of 2009 is lower than the target level. This is due to the downfall of exports though imports are going up. Meanwhile, household demands and businesses purchasing more investments and equipments remain solid.

Also, the percentage of the financial market that is predicting another 25-basis point increase in February went down from 67 to 45 per cent.
Due to these figures, ANZ acting chief economist Warren Hogan reacted that the GDP numbers mean that there must be some urge to put interest rates back to neutral and that Battellino’s remarks can cause a major setback to having substantial gains in the cash rate in the succeeding months.

Hogan also added that the emergency setting of interest rates is now erased and the policy for it will be adjusted according to present conditions. Also, Westpac chief executive Gail Kelly told after their annual meeting that the RBA might raise rates very carefully next year though the cash rate level is not at normal yet.

However, Westpac chairman Ted Evans commented that recovery is still a long road ahead. He also defended their bank’s move to raise interest rates higher than that of the RBA’s. Evans explained that since interest rates are rising in the domestic and global scene, it is right for them to increase these costs to prevent the further weakening of their bank and of the Australian financial and economic system all together.

Evans also added that they have absorbed the rate increases rather than let their borrowers suffer it. He also claimed that deposit rates being held down or business rates being raised is unfair to subsidize home loan rates.

Information Source – RBA

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Despite that, the latest Australian Finance Group mortgage index reflects that home loan purchases went down for a second straight month due to the declining first home buyer activity and higher interest rates.

The average home loan value is now at $367,000. This 6.4 per cent increase proved to be the biggest hike since May 2009.

Among all states, Victoria has the highest mortgage value growth with 12.1 per cent. At second is NSW with 10.7 per cent while Western Australia’s mortgages rose three per cent. Average new mortgages in Queensland stayed the same.

Though there is an increase, AFG Sales and Operations General Manager Mark Hewitt claimed that confidence on home loans is still unstable.

Hewitt stated that though higher mortgages rates correspond to higher consumer confidence, home loan sales transactions in October and November went down. He also added that the recent interest rate hike by the Reserve Bank of Australia might have negative implications to possible mortgage customers for it can take out confidence with home loan deals.

November’s home loan transactions totaled 6,541. This is 8.36 per cent lower than October’s numbers. And while 13.7 per cent of the new loans were by first home buyers, it still is 14.4 per cent lower than the peak rate of March 2009.

Though there is a decline on the consumer end, property investors own a year-high 33.8 per cent of the new mortgages filed in November. The previous high was March’s 24.7 per cent.

Also, AFG pointed out that non-bank lending went up to 11.7 per cent in the third quarter of 2009. This rate is 4.2 per cent higher than the figure of second quarter of the said year.

This surge signifies a rising rivalry between the four major banks and second-tier lenders in the home loan sales market because of improved economic conditions. Because of this development, Loan Market Group executive chairman Sam White stated that non-bank activity will continually increase by 2010 and the four major banks will have a run for their money.