No banana smoothies, but ANZ to explain its new rates policy

ANZ chief executive Mike Smith says the bank is working on explaining its decision to “decouple” its interest rate decisions from monthly cash rate announcements made by the Reserve Bank.

This follows the bank’s announcement on December 8 (following its decision to pass on the December 6 rate in full) that in future pricing changes for retail and small business variable interest rates will be made on the second Friday of each month because ‘bank funding costs are now largely unrelated to movements in the Reserve Bank’s Official Cash Rate”.

Speaking at the bank’s AGM in Sydney today, Smith says it must explain its new policy “thoroughly”.

“We have got our boffins working on that. We must be transparent and clear about how we calculate this rate,” he says.

Smith says banks themselves are to blame for reinforcing the false public perception that there is a link between the RBA cash rate and bank variable mortgage rates.

“It will be a communication exercise.”

The bank though is unlikely to use Westpac’s “banana smoothie” analogies to explain its decision with Smith saying the best way to explain its new policy will be to ‘go back in time and the show disconnection between the cash rate and the variable mortgage rate.

“In the late 1980s the cash rate was higher than mortgage rate,”

In December 2009, Westpac put together a banana smoothie animated video, where it tried unsuccessfully to explain how the increase cost of wholesale funding (bananas) was pushing up the price of mortgages (banana smoothies) after the bank raised mortgage rates by 45 basis points following an RBA increase of 25 basis points.

 

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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