Reserve Bank of ANZ analysis

So, rather sensibly, ANZ has pulled the trigger. The 0.06% hike to loans that everyone has, not in the least offset by the .15% cut to the fixed rate loans that nobody has. Of course if borrowers jump in, rates are likely to immediately fall past that very rate! (h/t GB) Undoubtedly the major banks will follow. The hike came at 2.30, a silly choice, given its resonance with the RBA’s timing and encouraging media comparison with the old system. To be honest, I think the bank should lose this official rates day business altogether, it’s only serving to increase scrutiny. Here’s its rationale:

ANZ CEO Australia Philip Chronican said: “This month we faced a serious dilemma in our review, balancing the rising cost of bank funding including deposit customers’ interests in receiving highly competitive rates, and the expectation of borrowers that we keep lending rates as low as possible.

I think if you read between the lines you can see what’s really going on here. They need to raise rates but don’t want to stuff up their assets.

Other than that, as several commenters have noted, the degree of hike is clever, getting borrowers used to the idea of independent moves with a nudge here and a nudge there and leaving a moving target for the Government to exhaust its ammunition on. Frankly the Government is getting what is deserves for not having cojones to call a full blown “Son Of Wallis” inquiry to redefine the political economy of the banks. Treasurer Swan looks like a goose and I would not be at all surprised if we some new scheme emerge from the Government to force more competition on the banks. Falling business lending costs would be most welcome but somehow I suspect any new initiative would be aimed at the same old target: mortgages.

I see a few more immediate implications. The small hike means ANZ is trading off the need to keep raising, or taking from RBA cuts, against the need to introduce this process slowly. I cannot see a chronic drip of rate rises doing anything for confidence. There is also the question of why on earth the RBA did not cut earlier this week. With the dollar charging and the banks raising, did it really think the economy needed a round of tightening?

Finally, get used to obsessing about interest rates.

ANZ February Rates Review 100212


  1. this is a great move by ANZ to try to migarte customers from valiable to fixed right before interes rates get slashed. like cheesy in a trap. another kick in the guts for austrlaias largest employers though, small business

    • IMO its a jab at the RBA as well: it implies that the funding costs on fixed-term funding arent problem, but the RBA cash rate being too high is.

      (not that i believe this is the case given recent debt issues!)

    • Hasn’t there been a figure on here somewhere showing that the percent of fixed-rate mortgages consistently peaks before interest rates fall? Another example of the dumb money buying high and selling low.

  2. Great psyche-out by ANZ. They wouldn’t have tried it on if the RBA had lowered rates. Rates were kept steady, and ANZ saw their chance and went for it. “But it’s only 0.06%” (yeah just like Mr Creosote being offered that last bit of food…. “it’s only wafer thin!”

    • +1! kudos for the Creosote quote, though we’ll see soon enough what the effect of this mini-tightening will be…

  3. does it seem like every time a bank drops their rates for a fixed loan that interest rates gets cut soon after, I’m sure it happened in 2008 and also just before the last lot of rate cuts, sneaky but also a good indicator

    • Fixed rate mortgages get cut by the banks because the term rates they are funded from have fallen (e.g. 3 year swaps have fallen from 5.4% in May 2011 to 4.15% today.)

      Term rates tend to fall when the bond market (usually correctly) decides that the RBA has got it wrong with their forecasts and will soon be cutting the cash rate.

  4. So to put this into context:

    ANZ: 7.36%
    CBA: 7.31%
    Westpac: 7.36%
    NAB: 7.22% (?)

    (- couldn’t work out NAB’s SVR.)

    All ANZ did was bring itself into line with Westpac. So much fuss over so little…

    • its not the size of the rise its the direction that will ring alarm bells. RE agents all over the country scambling to re write their sales pitches for tomorrows auctions.

      • sorry forgot to add: we went into the week expecting rate cuts but by the end of the week got a rate rise. from a phsycology perspective that is a very big deal

  5. Why doesn’t the RBA just stop beating around the bush and cut official rates to zero.

    The AUD will correct, helping the struggling sectors.

    Credit growth will hardly be impacted because the current level of outstanding debt means no-one really wants to take up more of the stuff anyway.

    And the banks will set borrowing rates at whatever level they need to make their required rate of return anyway!

  6. We keep reading comments about the slowing/about to slow non-mining economy.

    Does anyone have any analysis of the relationship of GDP growth contraction and the All Ords whether as a leading, lagging or coincident indicator?

    I’ve done my best with some quarterly data and can’t see any short term correlation. The closest I see is that All Ord growth was about the same (1x) as GDP growth on average from 60 to 75, then PE’s adjusted from 5x to 20x and the index grew at 6x GDP until the crash in 87 and from then till now the average has been back at 1x (although seemingly falling away over the last 2 years.

    Any thoughts?

    • Many variables at play here.

      GDP and market returns are very different beasts. Further clouded by valuation, which is regime-dependent.

      Research shows zero to slightly negative correlation between five year GDP growth rates and stock market returns (people typically over pay for a growth story).

      But conceptually, in the absence of re-rating or de-rating, real earnings can only grow at the real GDP growth rate adjusted for productivity improvement.

  7. I think no one is picking up the big picture here, the RBA has totally lost control of monetary policy (as did the Govt in the past when it handed control to the RBA).

    So now monetary policy is totally in the banks hands. It always largely was, bank lending is only limited by how much banks can scrabble to find/securitise/pass on/etc after they have actually lent the money. In an asset bubble they can find/create virtually unlimited amounts of money … going up that is. Going down the pother side of the bubble is a different situation indeed.

    But central control of interest rates was at least a small to moderate amount of indirect control. Now even that is gone.

    For example, if the RBA wants to raise interest rates (to control inflation, prevent a run on the dollar, whatever) the banks could say ‘rack off’ and quite possibly lower interest rates.

    Vice Versa of course, when the RBA panics later this year and cuts interest rates it will have absolutely no effect on Bank behaviour who could quite easily raise them depending on their own interests.

    The ultimate in privitisation indeed. This is going to be a very interesting experiment. ‘Interesting’ as in the Chinese version of course.

    I trust the Govt will take this lesson to heart and shut down the RBA since it is now completely irrelevant.

    • apparently its quite a bit. i dont think we mix in the circles that are so deeply leveraged that a few dollars per week does matter. i have never understood how a populous could get so hysterical about a few hundred bucks/month either way (+-100 basis points). its really disturbing when you consider average incomes etc. segments of the populous are are hanging on by their fingertips.

  8. Hang on a minute. Now wasnt it just a few months ago the MSM, govt and everyone else out there talking about how the Australian Banks were in great shape. Oh yeah and even funnier they were the envy of the rest of the Worlds Banks. LOL…..

  9. ReRBA not dropping rates…

    I think they will, and soon…

    But I would also suggest that they are actually trying to encourage the dis/de-leveraging trend that has started, rather than encourage more useless debt to get created by “yet! Yet! Cheaper loans!”, which Australians seem to do FAR too easily.

    I still think they are inconsistent, but it seems a somewhat move, in retrospect…

    My 2c

  10. Well at least it is now official. The Big 4 DO control Australia’s monetary policy. As a cartel, they may now do as they please with impunity and a Govt guarantee…interesting.