Anger understood, but banks not cavalier: ABA

by Adam Smith03 Feb 2012

Five days out from the RBA's next cash rate decision, Australian banks are again flagging that they may stay put on rates.

The Australian Bankers' Association has sought to defend any inaction by the banks following a possible rate cut on Tuesday, with chief executive Steve Munchenberg arguing that global uncertainty may stay the banks' hands.

“We understand that many people will be angry if banks do not pass on the full extent of RBA rate changes. For over 10 years banks moved in step with the RBA and that created the reasonable expectation that the RBA cash rate was the only factor determining bank funding costs and the interest rates banks charged. Unfortunately, the global financial crisis has shown that this is not the case," Munchenberg said.

Munchenberg reiterated the argument of the majors that funding costs were tied more closely to the Eurozone than the official cash rate, and said the cash rate was "no longer an accurate indicator of bank funding costs".

This doesn't mean that banks are set to cavalierly jack up rates, Munchenberg said.

"The RBA still influences some bank finding costs and can cut or raise the cash rate to drive responses from banks. If the banks do not follow a change in the cash rate, the RBA can change the cash rate again until commercial interest rates are where the RBA wants them," he said.

Munchenberg argued that competition between lenders would also stave off overpricing by banks.

Related stories:

Borrowers banking on February rate cut

NAB denies correlation with RBA moves

ANZ holds fire in first solo review

COMMENTS

  • by Positive Broker 3/02/2012 3:46:42 PM

    Not even worth commenting on. Support the smaller lenders at every opportunity!