The Australian Banker’s Association (ABA) has lashed out at Australian Chamber of Commerce and Industry (ACCI) chief executive, Peter Anderson, following an article in which Anderson likened the major banks’ refusal to pass on interest rates in full to ‘highway robbery’.
Anderson made the statement in an opinion piece published by the Herald Sun late last week.
“The fine print of the February [RBA] decision lets us into an important trade secret. It tells us that lending risks for banks have narrowed and that funding conditions for financial institutions are more favourable…The unfavourable funding cost pressure that banks used as justification has eased. Keeping a portion of a customer’s interest rate cut on an on-going basis…is highway robbery.”
However, the ABA’s chief executive, Steven Münchenberg, says the piece demonstrates a ‘very poor grasp’ of business economics and monetary policy and that Anderson’s claims that banks’ funding costs have declined is ‘incorrect’.
“ACCI’s call is based on both false claims and a profound lack of understanding of how monetary policy works. This is very disappointing…As recently as last week, the RBA made it clear in its Statement on Monetary Policy that, relative to the cash rate, banks’ outstanding funding costs are estimated to have been broadly unchanged over the past three months.
Prior to that, he says the RBA was confirming that bank funding costs were elevated and not all of those higher costs had been passed on to customers.
“While we have seen some promising improvements in longer-term wholesale funding…that improvement in wholesale funding is having only minimal effect on banks’ overall funding costs.
Münchenberg says the ACCI has ‘consistently’ argued that banks should not pass on their higher funding costs to their customers and that the ABA would be ‘interested’ to know whether ACCI maintains this principle for all businesses – that they should absorb rather than pass on some of their higher input costs.
“ACCI has also shown a remarkable misunderstanding of how the RBA manages monetary policy. The RBA is concerned with the level of interest rates in the market, that is, how much households and businesses actually pay. The RBA uses the cash rate to influence those market rates and seeks to strike the right balance between economic growth and the containment of inflation.”
He says the RBA is ‘broadly happy’ with where interest rates currently stand and that, if it had wanted to see lower retail rates, it would have cut the cash rate at its February 5 meeting.
“The flaw in ACCI’s call for interest rate cuts is that, even if banks cut rates, the RBA would merely move the cash rate up until retail interest rates were back to where they are today.”