ANZ being the first to announce a 0.25% rate cut this week may well have got the headlines, but it also made a more important announcement about how it determines future interest rates.
Instead of announcing its rates once the Reserve Bank has stated its own cash rate, ANZ announced that, from now on, it will determine its rates on the 2nd Friday of each month. This decision should see a bit of honesty from the banks.
I have heard senior bankers say before that, while the Reserve Bank was increasing rates, it was easy for them to ratchet up rates as they were simply following the Reserve’s lead. The implication being ‘we are sorry customer, we didn’t want to increase rates, but the RBA left us with no choice.’
But the banks have found themselves in strife now that the rates are coming down. Logically, they should again follow the reserve bank’s lead.
Of course, they should only decide to follow the RBA in lockstep if the RBA’s cash rate is the major determinant of the cost of money that you and I borrow to buy our house. Here we have a difference of opinion:
· The RBA says that its cash rate “has a powerful influence on other interest rates and forms the base on which the structure of interest rates in the economy is built.” (See the section on the implementation of monetary policy in this link http://www.rba.gov.au/monetary-policy/about.html#the_implementation_of_monetary_policy.)
· But, ANZ now says that the cash rate is no longer the major determinant of the money it borrows to lend to home owners http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTE3OTY3fENoaWxkSUQ9LTF8VHlwZT0z&t=1
ANZ’s announcement will mean that they can no longer hide behind the reserve bank. They will have to be honest with us about their rates and how they can justify them.
If the banks don’t cut by as much as home owners believe they should, then we can always shop around.
