The third issue that I would like to touch on is the normal level of interest rates. For much of the decade or so before the financial crisis it was normal for headline mortgage rates to move in near lock step with the cash rate.
This has obviously changed over recent years, as bank funding costs – and hence mortgage rates – have risen relative to the cash rate. As we have noted many times, the Board of the RBA has taken account of this in its monthly policy decisions. As a result, the cash rate today is around 1½ percentage points lower than it otherwise would have been.