The Reserve Bank's decision to keep interest rates on hold might give the impression that the big banks have been let off the hook.
Many of them cried poor as higher wholesale funding costs squeezed their margins.
Just a few months ago ANZ went one step better, explaining the composition of its funding base, detailing how funding costs are rising. It almost seemed like it was preparing us for future out of cycle interest rate moves.
And despite NAB yesterday morning promising to keep its standard variable rate lower than its three major competitors for the rest of this year, experts were warning the banks wouldn't pass on all of the RBA's rate cut, if it went that way.
But it didn't. The Reserve left the official cash rate at 4.25 per cent, so the bank bashing has abated for now.
Or has it?
There seems to be some suggestion that this non-move by the RBA may in fact provoke some of the banks to lift interest rates.
Chris Kimber, Managing Director of Wealth Managements at FatProphets, said that it is possible for the banks to lift interest rates. He says, “If it is true they are not making any profits on recent mortgages they have issued then it has to rise at some stage.”
He adds that the “RBA is playing a game with the banks, not cutting rates as they knew they would not pass it on anyway.”
Stephen Koukoulas, the Managing Director at Market Economics says that its true funding costs have risen and that “there's an even chance we see one of the banks lifting rates 10bps or so.”
Fitch recently placed Australia's big four banks on credit watch negative, citing their reliance of overseas funding, and rising funding costs.
Given these costs are rising, despite the official cash rate being steady, simple math would seem to suggest the banks would need to lift their standard variable rates to protect their margins.
But at what cost?
CommSec's Craig James says that “you can't rule it out and is a risky thing to do.”
If anyone does move first, it would likely be ANZ. It now announces its interest rate intentions on the second Friday of every month, independent of the RBA.
Shane Oliver, Chief Economist at AMP Capital says there's only a low risk of the banks lifting interest rates. He told me that risk is “around 15 per cent”. He adds that the RBA still appears to be retaining an easing bias, and that there would be huge negative publicity if they did move, so it would be better to wait and hope the RBA does cut again.
While Peter Esho from City Index thinks it would be very difficult for anybody to move, if one does, “you'd have a lender lifting because they don't want volume, to reduce risk.”
White Crane Group's Clifford Bennett reckons the banks will “stay incredibly quiet and don't think they'll move at all.”
It's now up to the banks to see if they make any comments at all about rates.
The Reserve Bank will release more details on Friday with its Statement on Monetary Policy, but even if it doesn't mention interest rates, we'll definitely hear from ANZ at the very least, with its new policy to comment on its interest rate direction independent of the central bank.
