A new interest environment
Westpac Weekly Commentary says since the global financial crisis began, the cost of borrowing for banks and corporates rose substantially.
The Reserve Bank estimates that the marginal cost of bank funding is currently around 150 basis points above the OCR, compared to 20 to 30 points pre-crisis.
It says the crucial difference in last week's statement is that the Reserve Bank has assumed the wedge will remain constant at around 150 basis points over its forecast horizon, implying a lower OCR over time than previously assumed.
J P Morgan Weekly Prospects says regardless of the new interest environment it has not changed its view that the Reserve Bank will kick off the tightening cycle in July after the first quarter GDP report.
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