You have to admire our glorious elected leaders. Our current PM certainly knows a thing or two about Marketing and how to work a ‘sound grab’. Now that bank bashing has officially become an acceptable sport, the latest comments about the banks profiteering “because they haven’t passed on the RBA interest rate cut in full” demonstrates that being populist is actually more important than explaining the issues.
Funding for mortgages comes from a variety of sources and is not just reliant on RBA rates. Banks actually have more DEPOSIT customers than MORTGAGE customers and they need to balance the needs of all clients in addition to shareholders (which is almost everyone with a super fund). Clients with term deposits are doing it really tough and they certainly don’t celebrate falling interest rates. Falling rates also squeezes banks interest rate margins and they are already under pressure from slow loan growth, increased costs and remediation from the Royal Commission. (Not that I’m feeling sorry for them for their poor behaviour!)
The last thing that anyone would want is Australian banks being downgraded by international ratings agencies. This would increase their costs of funding and drive mortgage rates UP. The other reason is that Financials actually make up a third of the ASX 200. The big 4 banks make up a quarter and this is a large part of almost every super fund.
When the economy needs stimulus to grow (and it does right now), the government can spend on infrastructure and get money into the community (by increasing Newstart or Pensions for example) where it is likely to be spent. The RBA however, has only one lever (interest rates) to stimulate growth. As rates go lower this becomes less and less effective. See the problem? The government blames the banks because it is relying on the RBA to try and do the heavy lifting. The marketing message is “balance the budget” (but not the deficit) and don’t worry about stimulating the economy – just blame the banks. The RBA has stated numerous times that interest rate cuts alone aren’t enough.
Then again, you can’t say all of that in a 5 second sound bite….however Cathy Wilcox nailed it in today’s cartoon from SMH.
Interesting times.
