Australia’s three million households with a mortgage may avoid another interest rate hike next month due to the collapse of the American Silicon Valley Bank, a leading economist has suggested.
Gareth Aird, head of Australian economics at the Commonwealth Bank, said the Reserve Bank may be concerned about volatility in international financial markets, following the biggest US corporate collapse since the global financial crisis in 2008.
“The difficulty for market participants and the board will be evaluating a mixed set of results, some stronger and some weaker than expected,” he said.
“The fallout from the Silicon Valley Bank (SVB) collapse creates an additional layer of uncertainty ahead of the April board meeting.”
Australia’s three million households with a mortgage may avoid another interest rate hike next month due to the collapse of the American Silicon Valley Bank (pictured, a line up outside SVB’s Santa Clara headquarters in California last week pass)
Australia’s youngest billionaires, Canva co-founders Melanie Perkins, 35, and her slightly older husband Cliff Obrecht, were caught up in the collapse of SVB, with the Californian bank lending to tech firms and startups forever. They have bank accounts with them.
A company spokesperson refused to tell Daily Mail Australia exactly how much Canva had in SVB accounts, after the US Federal Deposit Insurance Corporation closed the California bank last week and took control of it. of your assets.
“We are discouraged to see the news about Silicon Valley Bank and the impact it is having on the tech ecosystem,” he said.
“We are in the fortunate position of having most of our cash outside of your banking system and we have safety nets in place to ensure our operations are not compromised.
“More generally, we’re also very aware that not everyone is as lucky as we are and we’ll be watching over the next few days and weeks to see if there are ways we can support the broader ecosystem.”
Australia’s youngest billionaires, Canva co-founders Melanie Perkins (centre) and her husband Cliff Obrecht (left), were caught up in the collapse of SVB, with the California-based bank lending to tech startups as long as they had bank accounts with them (they are shown with product manager Cameron Adams. right)
US Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen announced that SVB clients would be able to access their money through FDIC intervention.
What the latest interest rate hike means to you
$500,000: Up to $77 to $2,814 from $2,737
$600,000: Up to $93 to $3,377 from $3,284
$700,000: Up to $109 to $3,940 from $3,831
$800,000: Up to $124 to $4,503 from $4,379
$900,000: Up to $140 to $5,066 from $4,926
$1,000,000: Up to $155 to $5,628 from $5,473
Monthly repayment increases are based on a Commonwealth Bank variable rate loan increasing by a quarter percentage point to 5.42%, up from 5.17%, to reflect the Commonwealth Bank cash rate increase. Reserve at 3.6% from 3.35%. Refers to a borrower with a 30-year loan.
‘Depositors will have access to all their money starting Monday March 13,’ they said.
‘No loss associated with the Silicon Valley Bank resolution will be borne by the taxpayer.
“This step will ensure that the US banking system continues to perform its vital functions of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”
SVB shareholders and unsecured debt holders will not be so lucky.
But FDIC intervention has stemmed financial market losses, with the benchmark S&P/ASX200 index of the Australian Stock Exchange just 0.4 percent weaker in afternoon trading on Monday.
The collapse of the Santa Clara, California bank is shaping up to be the biggest crisis facing financial markets since the collapse of 158-year-old financial services giant Lehman Brothers in 2008.
Silicon Valley Bank, with $209 billion in assets and $175.4 billion in deposits, is the biggest bank failure since the collapse of Washington Mutual in September 2008 with assets of $307 billion.
The Reserve Bank of Australia this month raised interest rates for the 10th straight time to an 11-year high of 3.6 percent.
This has marked the most severe pace of monetary policy tightening since the RBA published a target cash rate in 1990 and has seen monthly payments rise at a variable rate of 46 percent since May 2022.
The Commonwealth Bank pointed to how RBA Governor Philip Lowe (pictured at Boonie Doon golf course in south-east Sydney) had suggested a possible “pause” on rate hikes.
A borrower with an average of $600,000 has seen his payments increase to $3,377, from $2,306.
An April pause would mark the first month without a rate hike since April 2022, when the cash rate was still at a record low of 0.1 percent.
It would also invite parallels with 2008 when the RBA raised rates in March of that year for the twelfth time since May 2002 only to have to cut them four times in late 2008 and early 2009 when the GFC hit business confidence.
Aird pointed out how RBA Governor Philip Lowe had suggested a possible “pause” on rate hikes.
“We think the Board would like to pause its tightening cycle,” he said.
“A pause is the appropriate policy response in April.”
Until the SVB collapse, the Commonwealth Bank had been predicting a 0.25 percentage point rate hike in April that would have brought the cash rate to 3.85 percent.
The other big banks, Westpac, ANZ and NAB, forecast a cash rate of 4.1 percent in May with two more rate hikes.