The sky isn’t falling

There have been concerns that the recent inversion of the US yield curve foreshadows a global downturn but we think that the recent easing in lending standards means the probability of a recession in Australia has actually fallen. Meanwhile changes by APRA, which limit Australian banks’ ability to provide capital to their New Zealand subsidiaries, increase the potential risks from higher capital requirements in New Zealand. That raises the likelihood that the RBNZ will water down the capital requirements before implementation.