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Cash rate, loan rate, equity funding
Finance & Accounting
Pages 4 (1004 words)
FINANCE Executive Summary RBA uses Cash Rate as a tool for executing the monetary policy in Australia to control inflation pressure in the country. Overall, cash rate shows a positive increasing trend in the country, with the exception during the years of Global Financial Crisis…
This can be attributed to the increased cost of debt funding for the major banks in Australia. Study of major banks’ fund composition shows that the banks are shifting their focus towards deposits and long term borrowings more and there has been a decline in share of short term debt in banks funding. Amongst others, higher deposit rates have contributed significantly towards increase in debt funding costs for banks. Although the share of equity has also increased in the banks’ funding composition but it has not contributed much towards changes in housing loan rates, since they are less risky. Until recently, in 2011, the spread between standard housing loan rate and cash rate has reduced by about 10 basis points due to the increase in discounts offered by the banks on new mortgages, but it’s only a small reduction compared to the overall spread. ...
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