RBA Rate Rise & Our Greedy Banks

May 3, 2006

After 14 months of steady interest rates, the Reserve Bank of Australia (RBA) has lifted its benchmark interest rate to 5.75 per cent This is a 25 basis point lift and was done in a effort to keep inflation at bay. View the official statement.

The RBA came to this decision based on; growth in the world economy, strong commodity prices, domestic spending, company profits, increased share prices and increased consumer/business borrowing. Fair enough – I would have thought that the recent petrol price increases had been doing a good job at keeping inflation/spending steady, but obviously there are many factors to consider.
Ok, so the RBA raises the cash rate and what do we see? Immediately the 'Big 3' of Australian banking (CBA, Westpac & ANZ) confirming that they will be 'reviewing their home loan rates'. Or as Paul Edwards of ANZ's head of group media relations so eloquently put it:

"It's inevitable that there's going to be a flow-on to lending rates."

It's inevitable when you're talking about banks, Paul, that's what it is! When the official cash rate increases, banks pass on this increase faster than a participate in a game of Hot Potato. However, when the official cash rate falls, well… that's another story all together. We're talking months before the banks home loan rates fall.

Here's the thing though – each of Australias major banks have posted profits of more than $2 to $4billion each last financial year. All the while making staff redundant (cost cutting they say), increasing charges & fees, closing branches and offering loans to people that are in no way capable of meeting the repayments.

I personally loath the banks and while I acknowledge that they provide a much needed service (finance), I really think the way they go about it is all wrong. The Bendigo Bank however is a good example of a social conscious bank that is putting back into the community rather than sucking it dry.

Oh and the rate rise, it's around about $14 extra a week (or fortnight, even monthly depending on which newspaper figure you believe) for the average home loan.