Interest Rates are set by the Reserve Bank

[Perth Investor]

Hi All

I've been really thinking about the recent interest rate fiasco for the last two weeks, I am a broker and I like to think how it affects my clients and how it affects my potential for more work!

But here is the point I think everyone has missed:

Interest rates are set by The Reserve Bank

Now I know what you're going to say, the international market, free economy etc etc. But that's all bullocks. You see if the big 4 banks all grew a heart and dropped rates by .5% tomorrow what would happen?

The Reserve Bank would increase rates by .5% the first Tuesday in December. Rates are exactly where The Reserve Bank want them.

Right now they are keeping a really low profile, because if CBA didn't do what they did on Cup day, the Reserve would have gone again in December. As it is now they will probably wait (but maybe not, I'm not here to crystal ball, that's for my next thread...).

In theory the only people that have a right to complain is the Reserve Bank, their profit will actually be less, and the big 4's higher, because the margins there are wider. But they don't really care, the big 4 is doing their work for them, and they will be seen as the good guys in December by not raising rates.

So it is a useless argument. CBA doesn't decide how much they charge, the Reserve Bank decides. This argument would only become a problem if the cash rate was at zero, and the banks were still charging 5%+, then we could all complain. But with the rates where they are the Reserve has plenty of manoeuvring room to get the mortgage rate right where they want it.

 

[bene313]

You see if the big 4 banks all grew a heart and dropped rates by .5% tomorrow what would happen?

The Reserve Bank would increase rates by .5% the first Tuesday in December. Rates are exactly where The Reserve Bank want them.

If the banks dropped their SVR by 50 bp, wouldn't the margin just move elsewhere? Eg. credit card and business lending rates would rise to compensate for the margin lost to the SVR loans.

 

[csc2]

Hi All

I am a broker and I like to think how it affects my clients and how it affects my potential for more work!

But here is the point I think everyone has missed:

Interest rates are set by The Reserve Bank

Now I know what you're going to say, the international market, free economy etc etc. But that's all bullocks. [/B]

want it.

I have an issue with several of your points.

1. You should have put that the standout concern of yours is your potential for more work ie: income from kickbacks which is what really concerns you....Not you are concerned about clients welfare.....Now thats "bollocks".

anyway:

2. Are not Banks buying money in the same places as the Bank of Canada, Japanese banks etc where rates right now are so low its ridiculous??

The Banks are generating the vast profits from Loans, forget all the other extra fees they poile on everyone, Loans are their business.

If this is the case then why are Australian banks making such a killing ? Considering the money market deals in USD generally and look where the AUD has been the last few years while the Banks have milked the Aussie battler dry....

Ill tell really you why: They are all listed on the ASX as the first and foremost reason.

The CBA are already streets ahead of the reserve banks recommended rate rises have been over the past 18 mths.

When the AUD starts sliding again, and it will the Banks will make a further killing...

Its a win win situation for the Banks that cry poor every year when they all lay down their annual profits on the table....pfft!

The CBA generates more net profit than a,most any US with ten fold clientelle....

You cannot tell me thats all because of great management...

Seriously in my view your opinion is very much flawed to the average punter like me.

The Reserve Bank is an independent arbitrator who always keeps a low profile, they always have done so and rightly so....rarely do they enter the currency market to prop up the AUD, only when vital to the nations economy....they are meant to be independent of banks not be the Banks spokesman!

 

[Deltaberry]

Profitable banking systems are a pillar of societies. The problem with giving everyone a vote is that 95% of these mortgage holders don't appreciate economics, are short-sighted and buy populist rhetoric. Feel free to destroy the banking system - doesn't bother me since I'm not even a citizen, just an expat. Lucky country indeed, with so much dirt to sell.

Some soul searching might help people here answer why you end up with choices like Gillard, Abbott and Brown. If you don't believe in free markets then stop calling yourself a free market, geez.... love the hypocrisy

 

[softmonkey]

Rates are exactly where The Reserve Bank want them.

The RB makes up only half of the leash - the other half is competition. If the Big 4 were the only banks in town they could push the margins wider and wider and the RB would be helpless. In fact with more than 90% market share this is exactly what they're doing. They don't even mind if a few smaller lenders undercut them. They'll make merry hay till their share drops to 70%, buy up the smaller lenders to boost market share back to 90%, rinse and repeat.

 

[csc2]

The RB makes up only half of the leash - the other half is competition. If the Big 4 were the only banks in town they could push the margins wider and wider and the RB would be helpless. In fact with more than 90% market share this is exactly what they're doing. They don't even mind if a few smaller lenders undercut them. They'll make merry hay till their share drops to 70%, buy up the smaller lenders to boost market share back to 90%, rinse and repeat.

Thats pretty much spot on...suncorp was a great example of that.

Im sure this is why Richard Branson is keen to get into the banking area of Aust and annoy the big players until he gathers up some suckers like us and is made a deal he cant refuse and leaves his consumers to feather their own nests when his Bank is taken over and he takes the spoils back overseas to prop up some of his other ventures...

Money makes the world go round..

Id sooner be in Australias shoes right now than be living in the US or UK...

 

[Perth Investor]

I have an issue with several of your points.

1. You should have put that the standout concern of yours is your potential for more work ie: income from kickbacks which is what really concerns you....Not you are concerned about clients welfare.....Now thats "bollocks".

anyway:

2. Are not Banks buying money in the same places as the Bank of Canada, Japanese banks etc where rates right now are so low its ridiculous??

The Banks are generating the vast profits from Loans, forget all the other extra fees they poile on everyone, Loans are their business.

Csc2

Thanks for the response.

Point 1, that's fine, no argument.

Point 2, I agree and I don't have an argument, especially for the first part of the comment, if PEOPLE overseas can borrow money at 1% and 2%, then why can't CBA buy it for that price? That bit has me baffled.

But I just want to make sure I had my point out there, because I think you may have missed it slightly. We can argue about how much profit they are making etc, I have no problem with that. My point is, that CBA can make $6Billion, or they can make $1 Billion, but right now the reserve bank wants mortgage interest rates at 7%, and probably 7.5% early in the new year.

That's what everyone is going to be paying, because that's what the reserve bank wants. Now if costs for banks funds overseas go through the roof and they start putting rates up, the reserve will drop rates to keep it where they want it. If rates overseas come down and the big 4 drop their rates here (yeah right...), then the reserve will increase the cost of local money to force them back to where they want them

So people are paying the rates right now that the reserve bank want them to pay. Currently the reserve still has the power to do that. If the reserve lost it's power to do that, and the big 4 made their own mind up, that would be bad. But it still has the power so I say this to clients of any bank, including the big 4:

You are paying the rate the reserve wants you to be paying. If you were paying more than the reserve wanted, they would decrease the rate. If you were paying less than they wanted, they would increase their rate.


If CBA was running at a loss, you would be paying this rate, if CBA makes $10Billion dollars you will be paying this rate, because this is what the reserve wants

Csc2 I want to make it clear I am not condoning or defending the profits of the big 4. But I ask you this question. If the big 4 banks were nicer would we be paying cheaper interest rates?

My assertion is no, the reserve bank would adjust the rate back to where they wanted it...

So you would be paying the same interest right now if the banks were profitable or not. So why are interest rates and bank profits always in the same argument? From my perspective I don't care how much they make I only care how much I have to pay, and as that won't change based on how much they make, I don't care.

 

[Rolf Latham]

kickbacks

Kickback usually refers to:

* Political corruption
* Bribery

I can receive a commission, but am not into bribery nor political corruption
I know what you mean........... but its like calling all property investors "scummy slum landlords"

Sometimes we arent aware of the power in what are commonly misused words

ta
rolf

 

[Kenster]

RBA is a private banking consortium.

The big 4 are private.

==> Their allegiance is to themselves, aka Management and stakeholders

Debtors happen to be mere casualties, "Collateral damage"

C'est la vie

 

[Aaron Sice]

The Reserve Bank is an independent arbitrator who always keeps a low profile, they always have done so and rightly so....rarely do they enter the currency market to prop up the AUD, only when vital to the nations economy....they are meant to be independent of banks not be the Banks spokesman!

are you serious?

are you aware of the stakeholding the RBA have in long positons on the AUD since 70ish cents?

why do you think they're ignoring the warnings and hiking rates?

lets talk about DFAT's / Securency's polymer money scandal as well while we're here, huh? That's the RBA bribing other govts. Disgusting series of events that's been swept under the carpet.

The RBA are a cartel. They are nothing but a bunch of plain faced crooks who are a law unto themselves, riding the ar53s of taxpyers till it hurts. they are a wealth confiscation vehicle - nothing more. anyone using or dealing with our FIAT toilet paper will get burned by them.

no vested interest ... my ar53hole.

 

[Ausprop]

if the logic is that it is the RRP % that is the magic number, then effectively the RBA has given .5% from the public purse to bank shareholders, many of which are foreigners. meanwhile we support this monopolistic price fixed no risk cartel with gay abandon.


I think the RBA is just peeved that the private banks have stolen their profit margin... we should all be peeved but for different reasons.

Labor has muttered about this problem for years but has FAILED to achieve anything. SWAN, WAKE UP - DO SOMETHING!

 

[hobo-jo]

are you aware of the stakeholding the RBA have in long positons on the AUD since 70ish cents?

I think you'll find the RBA closed their positions bought at 60c during the GFC if that's the stakeholding you were referring to.


High $A sends RBA into the red

THE rising Australian dollar has savaged the Reserve Bank's balance sheet, causing it to post a $3.8 billion annual loss - the biggest in its 50-year history.

The size of the loss - its second in three years - has forced the central bank to exhaust its rainy-day fund and prompted governor Glenn Stevens to warn that the RBA was unlikely to pay a dividend to Canberra for the next year while the bank built up its savings.

The result, contained in the bank's annual report, is in stark contrast to last year, when the RBA booked an $8.8 billion profit after its heavy buying to prop up the Australian dollar as it sank during the global financial crisis.

Regarding the wealth confiscation comment...where are they confiscating it to?? I was under the impression they were a government owned entity. I believe a majority of their 2008/2009 profit went to the Treasury for example (profit from supporting the AUD).

 

[Ausprop]

confiscating it from private to public ownership, understandable given our socialist set up. However Steven's comments that the rba won't be paying a dividend for some time sits well with my thoughts that both the rba and the commies within Labor are upset that the privately owned banks are sucking wealth from the economy that could otherwise go into the welfare state vending machine. You know how the RBA could get the CBA to drop their rates bak down? by dropping their own. They knew the banks were going to do this yet the RBA went and hiked them anyway.

 

[csc2]

Kickback usually refers to:

* Political corruption
* Bribery

I can receive a commission, but am not into bribery nor political corruption
I know what you mean........... but its like calling all property investors "scummy slum landlords"

Sometimes we arent aware of the power in what are commonly misused words

ta
rolf

Rolf do you have to declare how much commission you receive to potential mortgagees?

If so how is this explained?

If not, why not? it should be very clear that brokers can receive ongoing commissions as well as other incecentives.

I know the short term loans players in the money industry need to be reigned in for their unbelievable rates so I was wondering if the brokers themselves are being targeted further for openness.

Dont know about others states but R/E agents in Qld must now declare their commissions in writing and is signed by both parties as you may be aware.

I am not so familiar with brokers as i have never used their services.

Happy to hear from you on this issue.

Not having a go at you, Im interested in thoughts from the "dark side" so to speak!

 

[csc2]

Labor has muttered about this problem for years but has FAILED to achieve anything. SWAN, WAKE UP - DO SOMETHING!

Arh Ausprop, then if its labors fault then why didnt the Howard Lib/Nats govt do anything about it while they were in power?

After all rates were higher than they are today?

People to some degree need to stop trying to outdo each other in suburbs by building lavish homes and have debt up to their ears.

Its ok to blame the govt of the day but when are punters going to take some responsibility for their own lifestyles?

Both sides of the political camp have done zilch really and Im not one to go against that to be honest..the less govts have to do with business the better.

Govts will complain but the banks are cash cows for Govt coffers so whatever happens the Govt wont miss out in this country.

I would however like to see way more transparency on what rates banks buy overseas money at...I think this should become legislation and shareholders and the public who have loans should then decide who is ripping punters off.,,,then walk to whereever they feel is the best deal.

That will surely pull them into line a little.


Thoughts most welcome....

 

[intrigued]

2. Are not Banks buying money in the same places as the Bank of Canada, Japanese banks etc where rates right now are so low its ridiculous??

csc2

What rates are you referring too above, cash rates or mortagage rates.

regards

 

[Aaron Sice]

I think you'll find the RBA closed their positions bought at 60c during the GFC if that's the stakeholding you were referring to.


High $A sends RBA into the red

this was one of them - they tok another position when the all ords broke back above 4200. i remember reading it, i'll see if i can find it again.

Regarding the wealth confiscation comment...where are they confiscating it to?? I was under the impression they were a government owned entity. I believe a majority of their 2008/2009 profit went to the Treasury for example (profit from supporting the AUD).

just as Ausprop said, private to public. socialise the private profits. the RBA is exempt from audit like the US Federal Reserve and is also NOT driven by any parliament. it is a stand-alone entity.

see red...

 

[Aaron Sice]

Rolf do you have to declare how much commission you receive to potential mortgagees?

most FB/FPs have a disclosure document. i believe it's law to provide it.

 

[Sunfish]

Interest Rates are set by the Reserve Bank
I'm intrigued by this revalation.

Are you suggesting they should have rung you?

But what if they rang a self-funded retiree and asked him if he would like a little more interest on his nest egg? A different answer perhaps?

 

[Aaron Sice]

But what if they rang a self-funded retiree and asked him if he would like a little more interest on his nest egg? A different answer perhaps?

I'll be a self funded retiree.

please tell me how an IR rise will help me if my money is in a 12m term deposit or the bank decide not to pass on the rise to savings or i have a wad of cash under the bed that now buys less....?