Australia’s record run of interest rate rises more likely to end after Silicon Valley Bank collapse

theguardian.com:

Bets are rising that Australia’s record run of rate rises is about to end, as fears triggered by the collapse of Silicon Valley Bank sweep global markets and sink bank stocks.

The rapid shift in sentiment is good news for indebted homeowners grappling with rising mortgage repayments, although high inflation continues to pressure households.

The collapse of the California-headquartered SVB has prompted some traders to even start pricing in a chance of a cash rate cut in Australia later this year, a position that had little support just a week ago.

Peter Swan, a professor at the University of New South Wales business school, said the Reserve Bank of Australia was in a difficult position because if it paused its rate hike cycle as expected, it may have to combat higher inflation at a later date.

“The RBA is between a rock and a hard place,” said Swan, who also advocates for a pullback in spending by the federal and state governments.

“We are expecting a lot more disharmony and failures of banks around the world.”

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The California-headquartered SVB collapsed on Friday after customers rushed to withdraw their money over concerns for the bank’s financial stability.

The preferred bank for the technology sector invested heavily in US government bonds which lost value after the Federal Reserve started to aggressively increase rates to combat inflation, making it the biggest corporate casualty of the rate hikes.

While the US government moved quickly to contain the fallout by guaranteeing deposits, investors have shunned the wider banking sector amid concerns SVB’s problems could be indicative of a broader weakness in bank balance