Is the RBA Becoming Irrelevant?

ANZ has increased its standard variable interest rate by 6 basis points to 7.36 per cent despite no move in Australia's official cash rate earlier this week.

ANZ said it has increased its standard variable home loan rate to 7.36 per cent from 7.30 per cent.

The move follows the Reserve Bank of Australia's decision on Tuesday to leave the cash rate on hold at 4.25 per cent.

ANZ no longer announces interest rate movements in lock-step with the RBA. The move was designed to change the public's perception ANZ's loan rates, and cost of funds, were tied to the RBA's cash rate.

So is the RBA becoming irrelevant?

I’d say it is becoming less relevant. The banks for example don’t price their credit card, or bank overdraft, or personal loan rates on the changes to monetary policy. The banks price the “credit” they offer on what the market is prepared to pay and the risk of the loan.

ANZ’s move is justified and welcome. Anyone who is critical of ANZ’s decision should remember that the only thing worse than a super profitable bank is a bankrupt bank. Just have a look at Greece, Italy, Spain, France, Germany, the UK and the US.

Also, you can forget about the RBA trying to defend (sell down) the hot AUD. FX markets worldwide trade around $250 billion per day in the AUD exchange trades and our RBA has only enough reserves to last about 4 hours.

 

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Comments

[TerjeP]

1.

The RBA is mostly irrelevant if you think the duty of the RBA is to set the price of credit. However the idea that the price of credit should be set by anything other than the market is pretty socialist.

The RBA issues Australian dollars. It's duty, prescribed by parliament, is to ensure that it issues these notes at a rate consistent with a slow, steady decline in the value of the Australian dollar relative to a basket of consumer goods defined by the ABS. It continues to perform this duty very consistently and with great reliability.

I would prefer if the ABS basket of goods contained some commodities such as gold. And I'd prefer if the rate at which the Australian dollar is set to decline relative to this basket was closer to zero. However if this is what parliament prescribed I have faith that the RBA could and would deliver.

In fact if we took this to the extreme (ie basket 100% gold and rate of decline = 0%) then I am certain that the RBA has the technical ability and the good stewardship to make the Australian dollar as good as gold. Assuming of course that this was what parliament wanted and they made such a directive through legislation.

[Andy Semple]

2.

Update:

WESTPAC Banking Corporation has become the second of the four big banks to raise interest rates in defiance of the Reserve Bank of Australia (RBA).

Westpac announced today that it would raise its standard variable home loan rate by 0.10 percentage points to 7.46 per cent, effective from February 20.

[TerjeP]

3.

What do you mean by "defiance"? Are you against having a market based price for credit? Would you prefer a command economy?

[dante]

4.

Defiance:
1. The act or an example of defying; bold resistance to an opposing force or authority.
2. Intentionally contemptuous behavior or attitude; readiness to contend or resist.

When did the RBA say to the banks "You cannot and must not raise interest rate"??

I warned you about those pink pills!!!

[dante]

5.

Over the years, the public, thanks to a manipulative, manipulated and grossly incompetent media, has come to link the “overnight cash rate target” (i.e. the rate that is published after the monthly Board meeting) as the ‘real interest rate’. There is a link between the 2 but it is not what determines the interest rate you and I pay for our credit card, loans and other bank facilities. Maybe reading the information on this link will help. http://www.rba.gov.au/monetary-policy/about.html
Andy, you appear to know only 2 types of banks: “super profitable” or “bankrupt”. I think there is a big, huge, enormous gap between these 2 extremes. Banks need not be “super profitable”, just profitable will do. In fact I’m waiting for that ‘clever’ banker (surely there must be some out there!) that will ‘denounce’ super profits as not being in the community best-interest when ‘everyone is doing it tough’ and drop the lending interest by 0.5% compared to the “super profitable” banks. That bank won’t have to buy publicity, the news will take care of that, and people will start to shift their loan to this ‘clever’ bank which will then make super profits without being labeled “greedy”. Any takers??

[dante]

6.

Andy, you mischievously link “credit card, or bank overdraft, or personal loan” prices to the RBA. A reader, unaware of RBA mandates, reading your introduction could start to form the opinion that the RBA would be more relevant if it did set the price of credit cards, bank overdrafts or personal loan. By the RBA relevancy to these issues you have demonstrated once again the true intent of your articles, i.e. misinformation at all cost.
Before we decide if the RBA is relevant or not, we need to make sure we know the TRUE role of the RBA. Details are available in http://www.rba.gov.au/about-rba/index.html but I limit to quote Sections 10(2) and 11(1) of the Act. Section 10(2) of the Reserve Bank Act 1959: “It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:
a. the stability of the currency of Australia;
b. the maintenance of full employment in Australia; and
c. the economic prosperity and welfare of the people of Australia.”
Monetary and Banking policies, it says nothing about credit interest rates and all the other crap you are on about. And by all accounts the RBA is doing a fantastic job.

[Andy Semple]

7.

ask the Australian as that's where I took the quote.

[Andy Semple]

8.

Read what I said silly.

[TerjeP]

9.

Andy - when you quote somebody else's work it is customary to put it in quotation marks and cite the source. It is also helpful if you explain whether you agree or disagree. We now know that the word "defiance" was in a quoted passage but we don't know if you agree or disagree with the underlying mentality that suggests we should have a command economy when it comes to credit markets. To borrow another phrase, "please explain".

[Mike]

10.

if the RBA is doing so much a great job as some of you are saying - why then do the banks go against what the RBA sets as the interest rates (its irrelevant to what the rate applies to) - the RBA is in itself weak and irrelevant as the banks do what they want as has been proven in the past few days - The RBA has no power at all just another toothless tiger put there to once again pull the wool over the eyes of the man on the street - one of the the worst things the Australian Government has ever done is to de-regulate the banking industry as they are worse than bullies in the school playground

[liberal elitist]

11.

That would be because the RBA's "job" is not to set interest rates on retail loans.