Can you bank on it?

We examine the potential impact of further interest rate rises and the issue of bank competition and ‘switching’. If the Reserve Bank of Australia (RBA) meets the expectations of some economists and raises the cash rate two or three times during 2011, what will your bank do? Will they lift rates in line with the RBA increase or will they break away and lift rates independently of the official cash rate? Since the mid 1990s it has become common practice for banks to move their indicator rates within hours of a change to the official cash rate. Yet in recent months their increases have gone beyond the official rate hikes, triggering strong public and political criticism. Head of the National Australia Bank, Cameron Clyne, says any link between the two events is a perception the banking sector has created for itself by consistently adjusting rates in line with RBA changes. "If the banks continue to move in line with the RBA, up or down, then we are continuing to compound the view that in fact our funding is related to those moves in the cash rate." says Clyne. Download the PDF