A credit shock in the making

The definitive story on interest rate price setting in January, and now in excess of two weeks old, lingered in the concluding sentence of Commonwealth Bank of Australia's announcement of changes to interest rates.

CBA slapped another 15 basis points on variable rate business loans to 0.85 per cent - for smaller businesses, in the main - at the same time the bank added 10 bps on standard home loans.

Variable rate business loans have increased by 55 basis points since October at CBA.

At ANZ business indicator rates are 45 basis points higher than in October and at NAB indicator rates are 50 basis points higher.

There was one rise, of 25 basis points in November, in the Reserve Bank of Australia's cash rate over that period (and one other tightening, of 25 bps in August 2007, and only days before world money markets woke up to a sub-prime crisis to worry about).

Ninety-day bank bills are only 26 basis points higher in the four months since October, though a lot of the pricing dislocation in the bill market (which in turn dictates many business loan rates) occurred earlier than that.

With the partial exception of residential home loans, banks have pushed through interest rates rises in business lending and other product categories that fully reflect their higher cost of funds.

Yet the monetary policy line from the Reserve Bank of Australia (refreshed by governor Glenn Stevens in a speech in London on Friday) and the emerging consensus seem to be that the credit shock means relatively little for global growth (even if its means a lot more for US growth) and means even less for growth in China and Australia.

And since inflation pressures are building in Australia, and the government is new, and the RBA governor is new (but part of an institutional tradition) there seems to be a determination about pulling the leash a few more times on monetary policy.