There’s nowhere to hide.

It doesn’t matter what Federal Treasurer Wayne Swan says, does or for that matter, what colour he turns, funding costs are what they are and even relatively safe, well capitalised Australian financial institutions are simply paying higher margins to obtain funds and they are passing it on.

When will it end? Not even PB16 reflecting on Australian cuisine from his retreat out at Kenthurst can tell us that but we’ll have a go.

Tossing the knowns, including the latest fear and loathing enveloping Fannie Mae and Freddie Mac in the States, and maybe a few more undesirable unknowns yet to come, we think the official and unofficial rate peak will have passed by Q4 this year.

There was a bit of a false dawn in May when most people started to breath a little easier but then came the spike in oil, a heightened focus on inflation and deeper concerns about the state of the US economy in addition to expectations of even greater financial losses to be reported on Wall Street. For the cost of funds to go up again in light of these occurrences is not to be unexpected
Most of the major bad news ought to be in and digested by the end of the year. It will have been nearly 18 months since the onset of the credit crisis and broadly speaking, institutions will have either failed or be righting themselves by then. Economic factors are a separate issue but we believe inflation is being gradually reined in and that seems to be the biggest contributor to official rates being where they are now. It would have to be a big shock to cause borrower rates to blow out significantly from here.

Variable and fixed rates have continued the trend down over the last week with BBSW30 down now to 7.5200% and BBSW90 down to 7.7583%. Fixed rates are ranging lower between 7.58%-7.94% over the One-Five Years, a drop of an average 12 basis points on top of last week’s fall.