CBA’s board needs to take ultimate responsibility for the bank’s failings

From The Conversation.

Something appears to be very wrong with risk management at the Commonwealth Bank (CBA), that cuts right across the bank. There have been risk management problems in the retail (money laundering), institutional banking (foreign exchange and bank bill swap rate benchmark manipulation) and wealth management (Comminsure scandal) arms of the bank.

This tsunami of scandals helped to trigger the Financial Services Royal Commission which will examine banking misconduct.

And the responsibility, the accountability for risk management stops, and starts, with the bank’s board.

In presenting its 2018 half yearly profits, the CBA board announced that the bank had set aside provisions of A$375 million in anticipation of a penalty resulting from failures to properly implement anti-money laundering controls.

In the media conference following the appointment of Matt Comyn as the new CEO of CBA, the chair of the banks’ board Catherine Livingstone, admitted, while it was:

…entirely appropriate to share a collective accountability for the issues that we have had… [that] the processes around operational risk management and compliance risk management…is where we have not performed as we should have.

In his first media conference as CEO, Mr Comyn, not surprisingly, concurred with his new boss.

And it became unanimous, when a few days later the progress report of the Australian Prudential Regulation Authority’s Prudential Inquiry Panel into the culture at CBA, reported that investigations were being focused on “capabilities and accountabilities for risk management in the organisation, particularly for operational, compliance and reputational risk”.

How the CBA manages risk

CBA’s latest annual report describes in some detail the risk management framework that is supposed to direct risk management across the bank. The framework, which incorporates the requirements of APRA’s prudential standard for risk management, comprises three main components: a risk appetite statement (which describes the types and maximum levels of risk that the board is willing to accept), a three year rolling group business plan and a risk management strategy.

The bank’s risk appetite is formulated by the Board Risk Committee, approved by the board, and dictates the levels of risk-taking in each business line.

In practise the bank actually follows what is called a Three Lines of Defence model. The so-called first line of defence is business management, which is responsible for the effective implementation of the board-approved risk management framework.

The second line is a separate group of staff with specific risk management skills to develop and monitor the risk management process. The third and last line is an independent group that acts as an internal audit function.

CBA is a large and complex organisation, and naturally there is a large, complex risk bureaucracy. This is detailed in the bank’s latest risk report.

However, APRA is clear that the board should take ultimate responsibility.

The lines of defence are clearly broken. If there had been one single, or maybe two, risk management failures at CBA, you could put it down to complexity, teething problems or just bad luck. But over the last decade, there has been a catalogue of bad risk decisions affecting the bank’s customers, shareholders and the Australian financial system.

After the first few times, surely the effectiveness of the risk framework and the three lines of defence should have been questioned and remedial action taken? But apparently it was not, and there is now frantic action by the people responsible – the CBA board – to do something (anything) about it.

In the media conference, Catherine Livingstone and the new CEO repeatedly talked about “collective accountability” and tried to diffuse the severity of the situation by talking about “organisation wide” and “culture” issues, as if even the staff in the bank’s branches were somehow to blame.

In fact, in the case of money laundering through ATMs that has drawn the ire of AUSTRAC, it was the first line business staff in the branches who raised the alarm. Their warnings were not taken seriously. To claim that the lower-level staff are somehow “collectively accountable” is bordering on the bizarre.

The accountability for the risk management failures is indeed spread far and wide but by far and away it is the joint responsibility of the board and executive committee. The knee-jerk reaction to cut a few bonuses is insufficient.

Someone in the board of the bank has to resign or be fired. Where failures are detected, bonuses already paid out, for example to recently retired board members, should be retrieved.

And going forward, the three lines of defence must become a real protection for customers rather than a convenient pretence, and APRA must ensure, for customers’ sakes, that the three lines are operating effectively in all large financial institutions.

Author: Pat McConnell, Visiting Fellow, Macquarie University Applied Finance Centre, Macquarie University

Adelaide Bank to monitor struggling property borrowers

From Australian Broker

Adelaide Bank is introducing an alert system that will monitor property borrowers that are struggling with their repayments.

The bank and its subsidiaries and affiliates will compare monthly mortgage repayments with borrowers’ income ratios.

“As part of our ongoing commitment to responsible lending, we are introducing the visibility of metrics relating to loan to income and monthly mortgage repayment to income ratios into our serviceability calculator for new loan applications – at the application stage only,” said Darren Kasehagen, Adelaide Bank’s head of business development and strategy.

Kasehagen told Australian Broker that additional commentary from the broker will be required when these internal guides are exceeded.

He stressed that this only applies to new loans.

“There is currently no change to our monitoring of existing loans,” he said.

The Australian Financial Review reported yesterday (8 February) that loans that exceed the bank’s guidelines will prompt a “diary note commentary” to alert the bank of possible mortgage stress.

The report said that this will automatically happen where the loan-to-income ratio exceeds five times or monthly mortgage repayments exceed 35% of a borrower’s income.

“The bank is telling third parties the data ‘is only required for internal purposes’,” said the AFR.

It attributed the bank’s move to an effort by lenders to prevent problem loans amid concern over rising household debt.

Volatility Rules

The latest print of the VIX or fear index highlights the switch in sentiment over the past week.

Given the ongoing gyrations in the major markets, (US down more than 4% today) it appears that the explanation of the correction as a flash crash thanks to programme trading is too simplistic.

This is going to play out over weeks and months, and it is all about interest rate hikes.

The Bank of England inflation statement over night also underscored rates are on the up, though they kept the rate at 0.5% and movements will be gradual

Any future increases in Bank Rate are expected to be at a gradual pace and to a limited extent. The Committee will monitor closely the incoming evidence on the evolving economic outlook, and stands ready to respond to developments as they unfold to ensure a sustainable return of inflation to the 2% target.

The US T10 Bond Yields are still elevated, and signals higher rates ahead.

The latest data from the US Bureau of Labor  signals more economic momentum, and supports the rate rise thesis.

From the fourth quarter of 2016 to the fourth quarter of 2017, nonfarm business sector labor productivity increased 1.1 percent, reflecting a 3.2-percent increase in output and a 2.1-percent increase in hours worked. Annual average productivity increased 1.2 percent from 2016 to 2017.

See my comments from earlier in the week:

 

Smartphones Drive New Global Tech Cycle, but Is Demand Peaking?

From The IMFBlog.

Over a decade of spectacular growth, demand for smartphones has created a new global tech cycle that last year produced a new smartphone for every fifth person on earth.

This has created a complex and evolving supply chain across Asia, changing the export and growth performance of several countries. While our recent analysis of Chinese smartphone exports suggests that the global market may be saturated, demand for other electronics continues to support rising semiconductor production in Asia.

Tech is the new trade

Smartphones have become a key metric of global trade. In 2016, global smartphone sales reached almost 1.5 billion units. Smartphones have become the main computing platform for many people around the world, supplanting personal computers. As the figure shows, demand for smartphones has surged while sales of PCs have declined.

This shift has led to the creation of intricate and dynamic electronics supply chains in Asia. In 2016, China exported $107 billion of smartphones to the rest of the world, equivalent to 5 percent of the nation’s total exports. In South Korea, the main supplier of smartphone components, semiconductor exports were 17 percent of total exports. Similarly, at the peak of the cycle, components for smartphone production accounted for more than a third of total exports from Taiwan Province of China, 15 percent of exports from Singapore and South Korea, and 11 percent from Malaysia.

Data on value added by the new tech cycle is not readily available. However, OECD data on value added to GDP by the computer, electronics, and optical sectors indicates the magnitudes involved. In South Korea, computer, electronics, and optical sectors accounted for 7.4 percent of total value added in 2013. In 2012, the ratio in Japan was 2.1 percent, and in Ireland, 2.0 percent. The percentages probably increased substantially in years since, reflecting the new tech cycle.

Rising tech cycle

Demand for smartphones is highly cyclical and related to the release of new models. Thus, production and trade in several Asian countries have become highly correlated, shaping a new tech cycle that differs from the earlier tech cycle associated with PCs.

In our paper, we show that the new tech cycle cannot be captured by standard seasonality. Instead, it depends on the release dates of Apple Inc. iPhones. The cycle can be subdivided into two components. The first is the pre-release cycle, with the export of components from several Asian countries to China, the producer of most smartphones. The second is the post-release cycle, with shipments of smartphones from China to the rest of the world. Both pre- and post-release cycles have a strong impact on growth and trade patterns in Asia and beyond.

Apple’s iPhone releases are the key determinant of the new tech cycle. Reflecting booming global demand, iPhone sales surged from 35.1 million units in the first quarter of 2012 to 78.3 million in the fourth quarter of 2016. A clear quarterly pattern is emerging in which second- and third-quarter sales are usually weaker, reflecting expectations of another release in the fourth quarter. The amplitude of this pattern has been established only since the September 2014 release of the iPhone 6/6 Plus. There are clear spillovers from the fourth quarter into the first quarter, ahead of the Chinese New Year.

Evidence the global market has become saturated

Our analysis suggests that this new tech cycle may have peaked in late 2015 and reached a high point in September 2015. We take into account production declines during the annual 15-day factory shutdowns for Chinese New Year.

China’s domestic smartphone market declined in 2017 for the first time, and Apple recorded a year-on-year decrease in iPhone sales in the fourth quarter of 2017. While the industry is still projecting increases in unit sales, our analysis suggests that smartphone makers may have to count on price increases to support continued revenue growth.

At the same time, Asia continues to gain market share in other, growing consumer electronics devices, including embedded automobile computers, smart appliances, and wearable devices. Trend demand for South Korea semiconductor exports continues to accelerate, despite the slowdown in global smartphone sales. The underlying trend in electronic export orders also remains strong in Taiwan Province of China.

This tech cycle based on smartphone production has become an important new driver of the global economy. While we find that the global market for smartphones may have become saturated, demand for other electronics continues to boost semiconductor production in Asia.

Australia’s Financial Regulators Need Policing

From The Conversation.

A Productivity Commission report analysing competition in the financial sector has pointed out that our finance regulators have become enablers of an industry that is an impediment to our economic competitiveness and exploitative of their most loyal customers.

It proves the need for a board to oversee the conduct of our financial regulators, policing the bodies that are supposed to be keeping our financial system in check.

It could not have come at a worse time for our big four banks. Perennially pilloried for their rampant market misconduct (fraudulently manipulating benchmark interest rates) and their equally rampant abuse of upwards of hundreds of thousands of consumers across every one of their retail operations at one stage or another – financial advice, life insurance and credit card insurance, just to name a few.

The Australian Securities and Investments Commission (ASIC) most recently launched a bank-bill swap rate manipulation case against the Commonwealth Bank, but only across a very narrow range of infringements. The bulk of the infringements can’t be prosecuted because ASIC has dithered for so long, the statute of limitations has run out, and the alleged crimes have proscribed.

And what of our other financial regulator – the Australian Prudential Regulation Authority (APRA)? The Productivity Commission reckons that APRA’s ham-fisted use of macro-prudential tools, usually used to reduce risk in our financial system, has benefited the big four banks to the tune of A$1 billion.

APRA has been criticised for pursuing stability in a manner that has killed competition, hurt consumers, and starved small businesses of life-giving capital. The dominance by a few banks, whose profits are based on runaway property prices, is its own systemic threat.

The result is that small banks are squeezed out, big banks raking in higher rates, and investors offsetting higher rates against their taxes and so costing the Australian Taxation Office an estimated A$500 million in deductions. As the old saying goes, when your only tool is a hammer, every problem looks like a nail.

Who will regulate the regulators?

So what to do about ASIC and APRA? Back in 2014, the Financial System Inquiry recommended a board of oversight – a regulator for the regulators – to ensure that the regulators discharge their mandates.

So, for example, to ensure that ASIC acts like a cop, not a co-op; that APRA acts with foresight and finesse, as opposed to damaging competition. APRA and ASIC pushed back at the time, and the Abbott government rejected the recommendation.

Now to add impetus to the Financial System Inquiry recommendation, the Productivity Commission says there is a lack of transparency and accountability exhibited by our regulators. Add to that the implications regarding regulator’s efficacy that comes with the establishment of the Financial Services Royal Commission. The public deserves better than this.

A regulator for the regulators – a Financial Regulator Assessment Board – would conduct ex post analyses of how regulators had discharged their mandates, evaluate their policies and the efficacy of their policy tools. It would be a sober second thought, and a crucial mechanism of double redundancy – to pick up on crucial elements that the regulator may have overlooked.

The idea has form. The British have created something similar, called a Financial Policy Committee, this body’s aim is to review the British regulators, while keeping a look-out for where the next “bombshell” may come from.

That development in turn builds on the work of James Barth, Gerard Caprio and Ross Levine whose research indicates that regulators simply cannot be trusted to perform these crucial functions as the guardians of finance, without oversight. The researchers call their proposed board of oversight the “Sentinel”, and point out that no industry is more adept and more practised at suborning the guardians of finance than banks and insurers. Sound familiar?

Australia’s financial system is increasingly governed by a lawless financial sector, presided over by regulators that are at best misguided, and at worst captured. A board of oversight is the least we can do.

Author: Andrew Schmulow, Senior Lecturer, Faculty of Law, University of Western Australia

RBA On Wages Growth, Interest Rates and Debt

RBA Governor Philip Lowe spoke at the A50 Australian Economic Forum today prior to the Statement on Monetary Policy to be released tomorrow.

Here are some of the key paragraphs:

Economic Outlook

The RBA will be releasing our latest economic forecasts tomorrow in the Statement on Monetary Policy. These forecasts will be largely unchanged from the previous set of forecasts. The RBA’s central scenario remains for the Australian economy to grow at an average rate of a bit above 3 per cent over the next couple of years. This outlook has not been affected by the volatility in the stock market over recent days. Indeed, it is worth keeping in mind that the catalyst for this volatility was a reassessment in financial markets of the implications of strong growth for inflation in the United States. For some time, many investors had been working under the assumptions that unusually low inflation and unusually low volatility in asset prices would persist, even with above-trend growth at a time of low unemployment. A reassessment of these assumptions now appears to be taking place against the backdrop of strong economic conditions globally.

On Wage Growth

On balance, though, in the current environment, some pick-up in wage growth would be a welcome development. Ideally, this would be on the back of stronger productivity growth. But even if productivity growth were to be around the average of recent years, a faster rate of wage increase should be possible. Indeed, a lift in wage growth is likely to be necessary for inflation to average around the midpoint of the 2–3 per cent medium-term inflation target. Stronger growth in real wages would also boost household incomes and create a stronger sense of shared prosperity. Our central scenario is for this pick-up in wage growth to occur as the economy strengthens, but to do so only gradually. Through our liaison with business we hear some reports of wage pressures emerging in pockets where labour markets are tight. We expect that over time we will hear more such reports. After all, the laws of supply and demand still work.

Household Debt

A while back we had become quite concerned about some of the trends in household borrowing, including very fast growth in lending to investors and the high share of loans being made that did not require regular repayment of principal. Our concern was not that developments in household balance sheets posed a risk to the stability of the banking system. Rather, it was more that they posed a broader macro stability risk – that is, the day might come, when faced with bad economic news, households feel they have borrowed too much and respond by cutting their spending sharply, damaging the overall economy.

We have worked closely with APRA, including through the Council of Financial Regulators, to address these issues. This work, together with other steps taken by APRA, has helped improve the quality of lending in Australia. In the housing market, there has also been a change. National measures of housing prices are up by only around 3 per cent over the past year, a marked change from the situation a couple of years ago. This change is most pronounced in Sydney, where prices are no longer rising and conditions have also cooled in Melbourne. These changes in the housing market have reduced the incentive to borrow at low interest rates to invest in an asset whose price is increasing quickly.

On balance then, from a macro stability perspective, the situation looks less risky than it was a while ago. We do, however, continue to watch household balance sheets carefully as there are still risks here.

Rate Rises

It’s understandable that some other central banks are raising rates. They lowered their rates by more than us and, in a number of countries, the unemployment rate is now below conventional estimates of full employment at a time when above-trend growth is expected.

Our circumstances are a little different. We are still some way from what could be considered full employment and our central scenario for inflation is for it to remain below the midpoint of the medium-term target range for the next couple of years.

We expect, though, to make further progress in reducing unemployment and having inflation return to the midpoint of the target range. If we do make that progress, at some point it will be appropriate for interest rates in Australia to also start moving up. So, given recent developments in Australia and overseas, it is likely that the next move in interest rates in Australia will be up, not down. If this is how things play out, the likely timing will depend upon the extent and pace of the progress that we make. As I have discussed, while we do expect steady progress, that progress is likely to be only gradual.

Auction Clearance Rates Slide As Listings Rise

According to Corelogic, last week, the combined capital cities returned a final auction clearance rate of 62 per cent across 790 auctions, with both clearance rate and volumes recording lower than last year when 68.8 per cent of the 881 auctions cleared.

The two strongest auction markets in terms of clearance rate last week were Melbourne and Adelaide, with both cities recording a 70.2 per cent rate of clearance. Followed by Canberra (62.2 per cent) and Sydney (57.1 per cent), while Brisbane, Perth and Tasmania all recorded clearance rates at or below 50 per cent.

It is expected that auction volumes will returned to normal levels in the coming weeks and a true reading of auction market conditions can be established.

Outside of the capital city markets, Geelong returned a final clearance rate of 88.9 per cent across 20 auctions. While the Gold Coast recorded the highest volume of auctions with 96 held, however only 46.9 per cent were successful.

NAB waives customer confidentiality clauses for Royal Commission

NAB has waived customer confidentiality clauses which otherwise may have silenced customers wishing to give evidence to the Financial Services Royal Commission. Well done NAB!

 Sharon Cook, NAB’s Chief Legal and Commercial Counsel says:

If any of our customers want to make a submission to the Royal Commission we encourage them to do so and we will waive any confidentiality obligations they have agreed to when resolving an issue with NAB.

We are doing this because it is important to us that we support customers being heard by the Royal Commission.

We have also communicated to our people we fully support them making a submission to the Royal Commission if they would like to.

The other majors have taken a similar stance, though some are a little coy about whether staff may also speak out!

Mandatory Comprehensive Credit Reporting Draft Bill Released

The Treasury has released draft legislation to require the big four banks to participate fully in the credit reporting system by 1 July 2018.   They say this measure will give lenders access to a deeper, richer set of data enabling them to better assess a borrower’s true credit position and their ability to pay a loan.

We note that there is no explicit consumer protection in this bill, relating to potential inaccuracies of data going into a credit record. This is, in our view a significant gap, especially as the proposed bulk uploading will require large volumes of data to be transferred.

It does however smaller lenders to access information which up to now they could not, so creating a more level playing field.  Consumers may benefit, but they should also beware of the implications of the proposals.

The Government is seeking views on the exposure draft legislation and accompanying explanatory materials, which implements this measure. Closing date for submissions: 23 February 2018

The Bill amends the Credit Act to mandate a comprehensive credit reporting regime such that from 1 July 2018 large ADIs and their subsidiaries must provide comprehensive credit information on open and active consumer credit accounts to certain credit reporting bodies. It also expands ASIC’s powers so it can monitor compliance with the mandatory regime. The Bill also imposes requirements on the location where a credit reporting body must store data.

Since March 2014, the Privacy Act has allowed credit providers and credit reporting bodies to use and disclose ‘positive credit information’ or ‘comprehensive credit information’ about a consumer.

This includes information about the number of credit accounts a person holds, the maximum amount of credit available to a person and repayment history information.

Prior to March 2014, the information that could be shared was limited to ‘negative information’. This includes details of a person’s overdue payments, defaults, bankruptcy or court judgments against that person.

However, the Privacy Act does not mandate the disclosure of comprehensive credit information by credit providers to credit reporting bodies.

The 2014 Murray Inquiry and the Productivity Commission Inquiry into Data Availability and Use recommended that the Government mandate comprehensive credit reporting in the absence of voluntary participation. Comprehensive credit reporting is expected to enable credit providers to better establish a consumer’s credit worthiness and lead to a more competitive and efficient credit market.

In the 2017-18 Budget, the Government committed to mandating a comprehensive credit reporting regime if credit providers did not meet a threshold of 40 per cent of data reporting by the end of 2017.

On 2 November 2017 the Treasurer announced that he would introduce legislation for a mandatory regime as it was clear the 40 per cent target would not be met.

The Bill amends the Credit Act to establish a mandatory comprehensive credit reporting regime which will apply from 1 July 2018. The amendments do not require or allow disclosure, use or collection of credit information beyond what is already permitted under the Privacy Act and Privacy Code.

Currently, Australia’s credit reporting system is characterised by an information asymmetry. A consumer has more information about his or her credit risk than the credit provider. This can result in mis-pricing and mis-allocation of credit.

The Bill seeks to correct this information asymmetry. It lets credit providers obtain a comprehensive view of a consumer’s financial situation, enabling a provider to better meet its responsible lending obligations and price credit according to a consumer’s credit history.

The Government expects that the mandatory regime will also benefit consumers. Consumers will have better access to consumer credit, with reliable individuals able to seek more competitive rates when purchasing credit. Consumers that are looking to enter the housing market will be better able to demonstrate their credit worthiness. Consumers that possess a poor credit rating will also be able demonstrate their credit worthiness through future consistency and reliability.

The mandatory regime applies to ‘eligible licensees’ which initially will be large ADIs and their subsidiaries that hold an Australian credit licence. An ADI is considered large where its total resident assets are greater than $100 billion. Other credit providers will be subject to the regime if they are prescribed in regulations.

Eligible licensees are required to supply credit information on 50 per cent of their active and open credit accounts by 28 September 2018. The information on the remaining open and active credit accounts, including those that open after 1 July 2018, will need to be supplied by 28 September 2019.

The bulk supply of information must be given to all credit reporting bodies the eligible licensee had a contract with on 2 November 2017. In this way the credit provider has an established relationship with the credit reporting body and will have an agreement in place on the handling of data to ensure it remains confidential and secure.

Following the bulk supply of information, large ADIs and their affected subsidiaries must, on a monthly basis, keep the information supplied accurate and up-to-date, including by supplying information on accounts that have subsequently opened. This information must be supplied to credit reporting bodies the credit provider continues to have a contract with.

Credit providers that are not subject to the mandatory regime will be able to access credit information supplied under the regime by voluntarily supplying comprehensive credit information to a credit reporting body or becoming a signatory to the PRDE.

The security and privacy of a consumer’s credit information will be preserved and protected. The Bill relies on the existing protections established by the Privacy Act and Privacy Code and the oversight of the Australian Information Commissioner. The Bill also places a new obligation on credit reporting bodies on where data is stored. In addition, the Bill places an obligation on credit providers to be satisfied with the security arrangements of the CRBs prior to supplying information.

ASIC will be responsible for monitoring compliance with the mandatory regime. It has new powers to collect information and require audits to confirm the supply requirements are being met. ASIC will also have the ability to expand the content to be supplied under the mandatory regime and prescribe the technical standards for the format of the information.

The Treasurer will also receive statements from large ADIs, their affected subsidiaries and credit reporting bodies to demonstrate that the initial bulk supply requirements, as well as the ongoing supply requirements, have been met.

The mandatory comprehensive credit regime, implemented by this Bill, recognises that industry stakeholders have already taken a number of steps to support sharing comprehensive credit information. This includes the PRDE and supporting ARCA Technical Standards.

The mandatory regime includes the ‘principles of reciprocity’ and the ‘consistency principle’ that have been developed by industry. To the extent possible, the mandatory comprehensive credit reporting regime operates within the established industry framework but also provides scope for future technological developments.

An independent review of the mandatory regime must be completed by 1 January 2022. The review will table its report in Parliament.

 

 

RBNZ Holds Official Cash Rate

The New Zealand Reserve Bank has left the Official Cash Rate (OCR) unchanged at 1.75 percent and released their February 2018 Monetary Policy Statement.

Global economic growth continues to improve.  While global inflation remains subdued, there are some signs of emerging pressures.  Commodity prices have increased, although agricultural prices are relatively soft.  International bond yields have increased since November but remain relatively low.  Equity markets have been strong, although volatility has increased recently.  Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory.

The exchange rate has firmed since the November Statement, due in large part to a weak US dollar. We assume the trade weighted exchange rate will ease over the projection period.

GDP growth eased over the second half of 2017 but is expected to strengthen, driven by accommodative monetary policy, a high terms of trade, government spending and population growth.

Labour market conditions continue to tighten. Compared to the November Statement, the growth profile is weaker in the near term but stronger in the medium term.

The Bank has revised its November estimates of the impact of government policies on economic activity based on Treasury’s HYEFU.  The net impact of these policies has been revised down in the near term. The Kiwibuild programme contributes to residential investment growth from 2019.

House price inflation has increased somewhat over the past few months but housing credit growth continues to moderate.

The Bank says ” Bank funding costs eased slightly in the second half of 2017. Consistent with the decline in funding costs and a fall in the two-year swap rate, the average two-year mortgage rate has declined by around 15 basis points since June 2017. In contrast, most other mortgage rates have remained relatively stable. Mortgage rates are higher than a year ago across all terms, but remain low relative to history”.

Annual CPI inflation in December was lower than expected at 1.6 percent, due to weakness in manufactured goods prices.

While oil and food prices have recently increased, traded goods inflation is projected to remain subdued through the forecast period. Non-tradable inflation is moderate but expected to increase in line with increasing capacity pressures.  Overall, CPI inflation is forecast to trend upwards towards the midpoint of the target range. Longer-term inflation expectations are well anchored at 2 percent.

Monetary policy will remain accommodative for a considerable period.  Numerous uncertainties remain and policy may need to adjust accordingly.