Banks and their Refusal to Pass on Interest Rate Cuts
“Between September 2008 and today, NAB has passed on more of the RBA rate cuts than any of the other major banks in Australia - and NAB customers are the ones who have benefited." NAB Statement on Interest Rates, 7 April 2009.
Sounds like they have almost been doing the right thing by their customers right? However the truth is somewhat different. I'm using NAB as an example, firstly because they refused to pass on any of the Reserve Bank's recent 25 basis point cut to the cash rate. But secondly, they happen to be the bank that i have my mortgage with.
One of the things that commentators and even the Federal Treasurer Wayne Swan fail to mention is the rate hikes thrust upon us by the banks in early 2008. These rate rises were in addition and independent to official rises to the cash rate by the RBA. I have provided my own example below.
What it means is that the differential between the official cash rate (as determined by the RBA) and the variable rate has significantly widened. While we focus on the banks failure to pass on the RBA rate cuts since September, its hard to find a commentator talking about the differential.
Here is my own example:
Prior to January 2008, the differential between the official cash rate and my variable mortgage rate was 1.32%.
In January 2008, the NAB increased their variable rate independently of the RBA by .12%. Differential, 1.44%
In February 2008, the RBA increased the cash rate by .25%. The NAB increased their variable rate by .29%. Differential, 1.48%
In March 2008, the RBA increased the cash rate by .25% (their last rate rise in the cycle). The NAB increased their variable rate by .29%. Differential 1.52%
Again in March 2008, the NAB increased their variable rate independently of the RBA by .09%. Differential, 1.61%
In April 2008, the NAB increased their variable rate independently of the RBA by .1%. Differential, 1.71%
In July 2008, the NAB increased their variable rate independently of the RBA by .15%. Differential, 1.86%.
My interest rate was therefore boosted by .54% independent of any RBA rate moves. Then we need take into account the fact that rate cuts since September have not been passed on in full by the NAB.
With the official cash rate at 3% and my mortgage rate of 5.24%, the differential is now a whopping 2.24%. That's just shy of 1% higher as a comparison than what i was paying in January 2008.
Is anyone talking about this in the media? Very few. Michael Pascoe from The Age is a notable exception. He's one of a select group of commentators whose views i take the time to listen to and have faith in. Alan Kohler and Stephen Long from the ABC being the others.
It seems as if the banks really are winning the spin war. But as usual, those of us with a mortgage are on the losing end. And there isn't much we can do about it.
What benefit is there in having the RBA determining the cash rate if banks wont follow by cutting their interest rates? Considering the power and lack of competition in the banking sector, its not surprising Monetary Policy is becoming a whole lot less effective.
About Just Grumpy
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