Reserve Bank of BEN hikes

And there goes anothery! From the SMH:

Regional lender Bendigo and Adelaide Bank has increased its standard variable mortgage rate 15 basis points to 7.45 per cent, becoming the latest lender to hike interest rates outside the Reserve Bank’s interest process.

Westpac and the ANZ defied the Treasurer, Wayne Swan, and lifted variable rates 0.10 and 0.06 percentage points respectively on Friday, despite a decision by the Reserve Bank to hold its cash rate steady.

Bendigo, like ANZ, has also said it would review interest rates independently of the Reserve Bank. Westpac’s new variable mortgage rate is 7.46 per cent and ANZ’s is 7.36 per cent.

Bendigo managing director Mike Hirst said current banking margins are not sustainable and adjustments to interest rates must be made.

“This is not a popular move, we know that, but it is the right thing to do to restore a proper balance between depositors, borrowers, the Bank’s shareholders and our community partners. At current funding cost levels that balance is out,” he said.

At current pricing levels banks were “subsidising mortgages,” Mr Hirst said.

“If you look at the traditional role of a bank this makes no sense and is unsustainable,” he added

I smell revolution.

Comments

  1. Curious HnH – you agree the RBA knew the banks would act but say they erred in holding. Would indicate to me that RBA knew exactly what they were doing. Holding with the knowledge the banks would raise…

    But why? What was the motive or intent?

    • The RBA didn’t “know” what the banks would do — they can’t see the future any clearer than you or I can.

      • You assume no discussions, no relationships, no means of communication. ANZ signalled last year independent action. Remember GFC when the banks needed help…someone talked to someone!

        You are quite correct to say that we cannot see the future, we can on occasion make a calculated assumption. Of course this may or may not be correct.

        • Why do you think someone has clued David Uren up? It’s because the actions of the banks and/or the public reaction has surprised the RBA.

          • I saw it as damage control. We didn’t expect this. Get something out to the media. Normally, the statement released on the Tuesday is considered enough.

    • To conclude they didn’t know can only mean they’re stupid, which they’re not.

      They must have known but concluded it was not such a big deal. Which is wrong but they’re economists not psychologists.

      • Not possible. They are the arbiters/agents of monetary policy. To knowingly cede this power to others is a big deal. An action not taken lightly nor in error.

        They knew.
        They held.
        Why.

          • Hnh,

            Or they wanted capital inflow via keeping rates relatively high?

            Also correct me if I am wrong but isn’t the decision of the RBA made by a board that includes CEO’s like Gerry Harvey ect?

        • I personally think they want to allow for the potential of higher unemployment to bite a little bit harder and for a little longer on wages growth and asset prices.

          • Don’t doubt that there is a little of that (or a lot – one for the pollies) there.

            But it was deliberate, therefore I don’t think a stuff-up.

          • 3d1k,

            I think you are saying that the RBA had considered all the angles and made a decision.So they knew what the posible outcome(s) would be. HnH is saying that the decision will be proven (in time) to have erred at that time.

          • Where was the mistake. The RBA held with the knowledge the banks would act independently. The banks were almost invited, if not actually compelled to act.

            The RBA was cognizant of this. This was deliberate. Was the mistake, in your view, simply a matter of holding in the first place (which is really a separate issue, as the banks were going to move in any case). ie The RBA should have lowered in the first place enabling marginally lower rates across the economy.

        • CBA just went 10bps aswell.

          i dont think they (RBA)did know 3d1k. this is unprecedented.

          i reckon the RBA tried to call the banks bluff and its backfired badly and now the banks have a gun pointed at the RBA’s head.

          the RBA would not have wanted them to raise rates as they themselves are easing, its just crazy and is not at all in line with the normal implmentation of monetary policy. a rate cutting cycle where rates get raised?

          by not cutting last week (and read the SoMP, there is no reason they shouldnt have cut) the RBA has shown it is prepared to gambled with the economy. they gambled and they lost and now the real economy (not the sharemarket) is going to go into a tailspin on what are now very valid “rate rise” fears within the community when what even blind freddy can see we need and should be getting is rate cuts.

          this is an unmitigated disaster for the RBA any way you look at it.

          • GB, the banks via ANZ had already signalled intent to move independently. This was a given. Even had RBA lowered rates, clearly the banks would not have passed the full rate cut on. ‘That yoke been broke’. Unless…

            I just ‘sense’ something more is afoot!

          • It’s not as though the banks have ever been forced to keep rates in line with the RBA, it’s just been market convention. Furthermore, you can’t say the “RBA is easing” when they held the rates steady, and all the commentary suggests they’ve just backed off a tightening bias to what they felt was a neutral bias.

          • i reckon the RBA thought ANZ didnt have the balls to do it. they were wrong and ANZ did it, and now everyone else has also done it! totally agree the banks wouldnt have passed it on in full but the point is you wouldnt have interest rates going up during a rate cutting cycle. its a massive error in judgement by the RBA. watch the real economy stop dead in its tracks.

          • 3d1k,

            you have finally arrived at where my thinking is at. What is afoot? That’s what I am trying to figure out. My best guess at this stage is its got something to do with the high AUD and capital inflow? That is relative higher i/r’s attracts capital.

          • I like a complicated theory as much as the next guy but there is a very simple explanation for the RBA decisions provided you ‘let go’ of the misguided idea that lower interest rates will solve all our problems and that everyone including the RBA should agree with you.

            1. RBA clearly knows that Bank margins are under pressure due to the increasing costs of funds.

            2. The options were to decrease rates and let the banks take a bite OR leave the rates where they are and let the banks raise independently.

            The RBA decision makes perfect sense if you accept that they just may be comfortable with the role that reasonable interest rates play in achieving a more sustainable level of private debt and more rational investment decision making.

            If the decision to cut in December was line ball then a decision to allow rates to drift back slightly IF the banks raise rates independently is not hard to understand.

            It called letting market forces play their part.

            The cost of money is going up.

            That should tell us something.

            MONEY WAS TOO CHEAP FOR TOO LONG.

          • Pfh007,

            One arguement is that the RBA is loosing control of interest rates in Australia. So the RBA may not be that comfortable with what is happening.

          • Yes. I think it is either the scenario you present, or, not complicated, rather simple – RBA happy (encouraging even) of this move by banks to raise (very modestly) and if the RBA does lower next time, again comfortable for banks not to pass on in full – if required.

            Banks have been provided the opportunity to embed a bit of a buffer and will make some return to, generally, moving in line with the RBA.

            Money costs.

          • Ace, as Karan says above, this was always a possibility – transformed into more of a probability following ANZs announcement of intent last year.

            If I am wrong and some sort of ‘tacit arrangement’ in regard to some flexibility in rates has not been reached between interested parties, would suggest game over for the RBA.

          • 3d1k,

            I tend to agree with HnH that the RBA erred except for one thing and that is the possibility of something that the RBA was considering that we all here have not considered. In the absence of that, they knew that the Banks might act and they got caught out which is not good when you have just been lowering rates.

      • Not after the last lot of payrises, he is also a member of the pre 2004 politician super scheme, so he gets his lifetime pension on his exit salary.

      • Mining BoganMEMBER

        Yes. Lowest common denominator stuff.

        The last 15 years or so it has become rife. I suspect it is because of the standard of leadership we’ve had.

        Nobody would have been game to give Paul Keating a name for fear of retribution. That was an acid tongue.

  2. ….keeps the rabble in line with some actual mortgage rate rises, rather than just jawboned ones? RBA can leave the banks marooned with a cut later on.

    • This is the same Mike Hirst who last year was telling shareholders to get used to more ‘utility’ like returns from banks. Some shareholders in particular did not like that message.

  3. I would like to see an analysis of the big 4′s books to genuinely examine the impact of this credit crunch and falling housing prices will have… at what point will they need to start raising capital?

  4. I don’t see why everyone dislikes RBA’s decision so much, surely it would have been much worse if they kept lowering rates constantly leading to the potential re-inflation of the housing bubble? Credit Growth is flat at the moment, and I am sure the RBA would prefer it be falling at at least a reasonable pace.

    What Australia did not need was a rate cut at the same time as the MSM reported that house buying activity was up due to NSW’s concessions to FHBs.

    There is no greater threat to our economy than the housing bubble, therefore it must be the overrriding factor in determining interest rates. Debt and prices must fall fast enough to make a difference, otherwise rates will not fall.