Will they or won’t they? Tuesday’s Reserve Bank board meeting is set to be the most watched in years and, possibly, a key moment in the election campaign. Opinion is divided over both whether the bank will, and should, cut in the wake of lower-than-expected inflation, continuing house price weakness and the impact on demand of years of wage stagnation under the Coalition — against continuing low unemployment and the current record low level of interest rates.
Today there was further data making a case for a rate cut: there was a big fall in building approvals in seasonally adjusted terms in March, while new car sales data from the Federal Chamber of Automotive Industries confirmed sales slowing by around 8% this year compared to 2018.
But if you want a clinching argument for a rate cut — and a demonstration of how the big banks remain entrenched in the same mindset that led to the banking royal commission — look no further than NAB CEO Phil Chronican. Chronican opposes a rate cut next week. Why? Because he doesn’t think the economy needs it? Because it will reduce the firepower the RBA has if a global downturn strikes? Because he holds Financial Review-style views that loose monetary policy is somehow immoral and needs to be tightened regardless of how many people it puts out of work? None of those things: Chronican doesn’t want it because it will reduce his profits by squeezing his margins. The bank yesterday revealed an interim cash profit of a very handy $2.954 billion.
NAB was the bank singled out by the Hayne royal commission for failing to learn from the litany of misconduct and scandals uncovered by Hayne, with chair Ken Henry and then-CEO Andrew Thorburn mentioned by name. Thorburn had tried to wave away the bank’s role in the notorious fee-for-no-service scandal as a minor issue of poor internal systems. The bank has now set aside over $500 million for compensation and may be up for a total remediation bill of a billion dollars.
Between August and January, each of the four major banks lifted their interest rates, pleading increased borrowing costs. This year, any increase in borrowing costs has been almost fully reversed, but so far banks have only reduced fixed mortgage rates — something that will also be a factor in the RBA’s deliberations. The failure to reduce variable rates reflects how the core problem uncovered by the royal commission — the banks’ determination to put profit before everything else — continues unabated, for all the rhetoric about lessons learnt and changed practices.
As we’ve noted before, if the consequences of prolonged wage stagnation end up being the reason for an interest rate cut that hurts the Coalition politically, it’s entirely deserved. And if the banks’ profiteering at the expense of consumers ends up tipping the scales as well, that one is on the Liberals, specifically, as well, given all the years they ran a protection racket for the big banks. We’ll find out at 2.30 on Tuesday afternoon.
Should the RBA lift interest rates on Tuesday? Write to [email protected] with your full name and let us know.