RBA only part of any rate decision: ANZ

Colin Brinsden, AAP Economics Correspondent

(Australian Associated Press)

Retail spending grew at its fastest pace since the beginning of the year in August as consumers spent up in department stores and dined out.

It was one of the first pieces of key data to reflect the Reserve Bank’s cut of the cash rate to a record low 1.5 per cent at its August board meeting, although it was a reduction the big banks didn’t pass on in full.

ANZ boss Shayne Elliott explained to a parliamentary committee that changes in the cash rate were only one ingredient in setting interest rates for home loans.

Australian banks did not have sufficient deposits to fund the demand for borrowing, and were required to source funds from both domestic and international capital markets at competitive rates.

“So when the RBA changes rates it directly impacts some but not all of our funding cost,” Mr Elliott told the House of Representatives economics committee in Canberra on Wednesday.

A new analysis by the Swinburne University of Technology found if the big banks manage to postpone a 25 basis point rate cut in their mortgage interest rates by 10 days, as an example, they can potentially each make an extra $16-26 million in profits.

“If some of our cost of funds goes down, the longer we delay, clearly that is to the advantage of the bank,” Mr Elliott admitted.

The International Monetary Fund expects interest rates in most parts of the world won’t be rising anytime soon, including in Australia.

In its latest World Economic Outlook, it trimmed its global forecasts again against the back of weaker than expected US activity in the first six months of this year, as well as downside risks from the UK voting to leave the European Union.

“These developments have put further downward pressure on global interest rates, as monetary policy is now expected to remain accommodative for longer,” it says.

For Australia, the IMF is forecasting economic growth of just under three per cent both this year and next, keeping the jobless rate around 5.7 per cent .

Shadow assistant treasurer Andrew Leigh said the global growth is looking fragile.

“All of that reminds us in Australia of having a growth strategy that isn’t just relying on trickle-down economics but actually involves investing in lower and middle class Australians,” Dr Leigh told Sky News.



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