Saturday, 11 February 2012

And another thing on the RBA and bank margins...

Can we stop the feigned concern or sensational grandstanding about the banks taking over monetary policy from the RBA?  Please?

The decision of some banks to lift their standard variable mortgage rates a few ticks is an event that will be taken into account by the RBA when it considers official interest rate settings each month in much the same way as it has over the past 15 years when the gap between the official cash rate and the standard variable mortgage rate has been between 170 and more than 350 basis points.

6, 7, 8, 9 or even 10 basis points that the banks have tweaked their lending rates in recent days is well within the ability of the RBA to deal with.

To be sure: the banks’ moves on mortgage and small business rates and the cost of funds will be a factor in future RBA deliberations.  So too will the prices that are charged for new cars, computers, tomatoes, underpants, haircuts, petrol and dog food.  So too will the currently unknown inflation and unemployment data for February, March and April.  So too with the level of the Australian dollar, credit market problems in Europe, GDP growth in China, fiscal policy, consumer sentiment and the weather.

At least the RBA can see what the banks are doing.

If next month or the month after that or the month after that, the RBA finds that it needs to adjust rates a little or a lot, up or down or leave them steady… guess what?  It will.

Bank interest rates are one issue and one issue only.  If what the banks are doing occurs when the RBA sees more influential information on wages, productivity, retail spending, the CPI, commodity prices and stock price moves, guess what?  It will adjust the cash rate to ensure the economy stays on an even keel with inflation always targeted to be within 2 and 3%.

What the banks are doing is no big deal.

1 comment:

  1. Interesting read, thanks.
    Of course the price of money is more important than most of the prices the RBA watches.