RBA’s views

So the Reserve Bank of Australia’s Phillip Lowe today said that:

“there’s no obvious reason why” banks wouldn’t pass through any reduction in official interest rates by the central bank.” Over recent weeks, the 90-bank bill rate has fallen considerably. This is often used as a measure of the cost of funds,” he said.

I would add “assuming the market was as competitive as it has been for the last decade.”

Of course, the Commonwealth Bank recorded record profits and also issued a statement telling everyone not to expect rate falls even if the official rate should fall. Of course, if it is in a press release it must be OK.

And during all of this the RBA warned the Federal Government to stay out of the mortgage market:

“While the availability of finance has tightened up recently, over the longer term we do not expect that a shortage of housing finance will be one of the problems that Australia will have to confront,” Assistant Governor Philip Lowe said at a financial services forum in Sydney today.

The creation of permanent government structures to increase the supply of credit “can have unintended consequences,” Lowe said.

He went on:

Australia, which doesn’t have a government-backed mortgage lender, has a “very competitive private mortgage market, which has offered a wider range of mortgage products to consumers than that seen in many other countries,” Lowe said.

Again, I hope he is right and that his expectations win over statements like that from the Commonwealth Bank. But, if not, can Lowe really continue saying that our mortgage market is highly competitive? I think in that case he will have a hard time convincing the government that there is nothing amiss in our banking system.

2 thoughts on “RBA’s views”

  1. It will be a good time to think about competition when credit conditions have returned to normal and our banks survive unscathed. That time is not yet here.

    Meanwhile I agree with the RBA: government backed mortgage lending is a really bad idea and the ongoing debacle in the USA gives one example of why. We should be thinking about how to pay off our mortgage overhang, not growing it further.


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