We use cookies to provide some features and experiences in QOSHE

More information  .  Close
Aa Aa Aa
- A +

Is the RBA governor losing control of rates?

1 1 0
05.07.2019

With a virtual click of his fingers, Reserve Bank governor Philip Lowe this week cut one of the most important interest rates in our financial system to a new record low.

But how, exactly, did he do this? And if most banks aren't giving mortgage customers the entire 0.25 percentage point cut, does that mean the central bank is somehow losing its influence over interest rates in the economy?

Most banks did not pass on the full 0.25 percentage point interest rate cut that governor Philip Lowe made this week.Credit:Alex Ellinghausen

The mechanics of official interest rates isn't something most of us think about, as the more pressing issue is how much of an RBA rate change will flow through to retail banks' rates on loans or deposits.

But in this latest move, relatively few banks have matched the RBA's full cut for mortgage customers, raising old questions about whether the RBA has as much control over its key "lever" for managing the economy.

A closer look at the nuts and bolts of how the RBA moves rates should put to bed any concern that it is losing control of rates. Even so, there are reasons to think that if the cash rate gets closer to zero, commercial banks' rates on loan and deposits are less likely to move in lockstep with the cash rate.

RBA governor Philip Lowe ....history suggests that fundamentally, rates will broadly move in the direction of the cash rate.Credit:Matt Davidson

The interest rate cut to 1 per cent this week, known as the cash rate, is what is charged when banks lend........

© The Age