The RBA vs the Banks on Interest Rate Changes
The last few interest rate changes by the RBA since late 2011 and now in May 2012 has seen the banks move away from the RBA rate changes and go it alone and set their own rate changes, even to the point of lifting rates when there has been no rate change made by the RBA.
While the banks continually post multi Billion dollar profits they cry poor as costs to provide banking are now apparently higher now, even though we all seem to be paying larger amounts of fees to use their most basic services.
By not passing on the full rate cuts the result is that the economy does not have as big of an impact of positive change due to less actual rate cuts being provided. This has resulted in the latest RBA decision to be a larger cut of 50 basis points as the RBA knew the banks would not pass on the full rate cut, for example the Bank of Queensland only provide a 32 basis points cut, the NAB was 35 basis points and so far the best being the Commonwealth Bank at 40 basis points.
On top of this there is also the delay in the actual change of rates being applied, meaning for a short period of time the banks are making a considerable extra amount of money by delaying the rate cut. I am unsure if they also delay the rate cut for deposits?
The problem I have with all of this is that if the RBA does make a rate increase the banks are very quick to apply that rate increase in full and almost instantly. What they should be doing is increase the rate by the same amounts they previously dropped it, but we know that will not happen.
The government response is simply to say switch banks, which is a good idea but what they forget to say or realise is that there is considerable costs to move from Bank A to Bank B. While they are introducing no exist fees for people to change banks there are still significant establishment and statutory fees in setting up a new loan with another bank and for many of us that is just not feasible to do. If we were able to switch from Bank to Bank at no cost then yes we would do it and then it would provide an impact on the banks, and the banks know this. It is a joke when you see Wayne Swan saying to the banks to pass rates on in full and telling us to change banks as he obviously has no clue about what he is saying and is out of touch with the harsh realities of mortgages most people have on their homes. The Banks do not care what he says and neither does the RBA, but then again that might be a good thing.
So what is the answer? Again I do not really have one as this is more a post of observations than much else, but I guess if the Government can legislate no exit fees then they need to legislate no establishment and statutory fees in moving to a new bank also. Make it a no cost process to move from Bank to Bank and then it might work.
In relation to the RBA vs the Banks, I feel there is little the RBA can do, expect for passing on big enough cuts to stimulate the economy when needed, simply to ensure that the banks pass on a bigger slice of that cut than they might have done with a smaller RBA cut.