Speaking to InvestorDaily sister title Mortgage Business, Dr Oliver said that if the oil price keeps falling, global growth continues to remain uneven, expectations of interest rate hikes in the US keep getting pushed out and expectations for cuts in Australia intensify, then borrowing costs will certainly come down.
Meanwhile, fixed-rate funding costs have been falling alongside wholesale borrowing rates.
“A good guide to that is the five-year bond yield in Australia, and it’s come down quite substantially to 2.25 per cent,” Dr Oliver said.
“In the last six months we’ve seen quite a sharp fall in bond yields around the world and in Australia.
“Last year, that started to drive five-year borrowing mortgage rates below the five per cent level and that’s still continuing,” he said.
Dr Oliver said the fall in bond yields has been driven by the expectation that inflation will remain low.
“The fall in the oil price has played a big role in that,” he explained.
“The oil price coming down has reduced inflation rates and expectations, which in turn is having the effect of pushing out expectations for short-term interest rates.
“In Australia, there is still some talking about short-term interest rate cuts.
“That all has an impact on longer-term borrowing costs. The people who benefit from that first are the lowest-risk borrowers – which is the federal government – so you’ve seen a sharp fall in bond yields over the course of the last year and particularly the last few months.
“That’s why the five-year bond yields have come down,” Dr Oliver said.
Cheaper funding costs led to dramatic rate reductions across fixed-rate mortgages last year, a trend that appears to be continuing into 2015.
