(RTTNews) - The Reserve Bank of Australia’s Assistant Governor Guy Debelle said the central bank expects to limit internal residential mortgage-backed securities as collateral given the improvement in funding conditions. According to him, there are “signs of life” in the market in recent months.

“With the improvement in funding conditions, we generally no longer expect or wish to see internal securitisations offered as collateral in our market operations on a regular basis,” Debelle said on Wednesday. Many of these repos backed by RMBS were initiated over a year ago. In recent months, the holdings of related RMBS by the central bank decreased significantly as these repos matured.

Speaking at the Australian Securitization Conference in Sydney, Debelle said the central bank intends to maintain the broader range of securities that it accepts in its market operations. That is, internal residential mortgage-backed securities will remain as eligible collateral, he said.

According to Debelle, now most financial institutions in Australia have better access to term funding in both domestic and overseas markets. Therefore, he said, the need for institutions to fund themselves using internal securitisations of mortgages has largely passed.

“While I expect securitisation to make a solid return, I do not expect it to be as large a part of the market as it was in 2007 anytime soon,” Debelle said. Securitisation will be an important part of the “financial landscape” in the future as it acts as a means of dispersing risk around the financial system, the policy maker added.

He noted that unlike in the U.S., the credit quality of Australian RMBS has remained at the highest level throughout the financial crisis. So the lack of new issuance and elevated spreads in the secondary market are not raising any concern over the credit quality of RMBS. Using on-balance sheet exposures, the non-performing share in Australian housing loans is less than 1% and the arrears rate has been declining slightly, said Debelle.

“Australian RMBS have been, and continue to be, a strongly performing asset needs to be continually reinforced,” he added. The Australian industry needs to differentiate its product from the U.S. brand.

The Australian central bank became the first among the G-20 nations to hike its interest rate in October. It raised the rate further by 25 basis points to 3.5% at its November meeting. Raising GDP forecast, the central bank said growth in 2010 will rise to 2.25% for the year to June.

In a note yesterday, Westpac Bank said current situation in Australia will justify another move in interest rates in December. Chief economist Bill Evans said the long pauses, which in 2002 and 2003 apparently created the imbalances that eventually led to the central bank needing to tighten aggressively while the global crisis was developing. The Australian central bank does not hold a board meeting in January, the economist said, and rates are still a long way from the bank’s assessment of neutral.

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Posted in Categories: Australia, Economy, Forex, Releases, USA.

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