Mark Bouris takes aim at RBA as Gail Kelly warns of ‘frequent’ independent bank rate rises

A stoush is brewing between the RBA, which looks set to leave interest rates on hold for some time now, and those who think they should fall. 

Yellow Brick Road’s Mark Bouris is the latest industry figure to call for a reduction in interest rates.

In a series of tweets today Bouris slammed the RBA’s most recent interest rate decision and said the central bank needed to take into account that Australia had a multi-speed economy when determining interest rate settings.

Bouris says the Reserve Bank needs to “scratch beneath the surface” of the economy and not just look at “OK” overall picture when setting interest rates.

At the same time Westpac boss Gail Kelly has warned home borrowers to expect small and more frequent rate changes as banks looked to maintain their profitability in a low growth environment.

Bouris began his twitter rail against the RBA with:

“Looking at the comments re a two-speed economy, this is a multi-speed economy ! At what point will someone make the call to do something??”

He then goes on to tweet:

• “What's the basis of the RBA decision? They keep rates on hold because everything looks OK but you just need to scratch beneath the surface.”

• “Manufacturing is suffering because of a strong Australian dollar, small businesses, retail, tourism the same. Mining is doing well but at what cost?”

• “Does anyone agree with me or what do you think?

• “Why can't we have policy that addresses all parts rather than the average?”
• “Anyone in the tourism industry have anything to say? How are you feeling?  What about manufacturers? Retail shop owners?”

In an interview with Australian Financial Review Kelly says borrowers should expect to see “smaller rate moves more often”.

Kelly says recent bank analyst reports show that banks will need to raise their home loan rates by between 0.15% and 0.2% to maintain their profits.

However, research by Nomura has found that mortgage lending remains highly profitable for banks delivering a return of 20% with Westpac’s mortgage lending business the most profitable, with a 23% return on the capital it lends out in the form of mortgages.

According to Nomura, Westpac would earn an extra $122 million by raising mortgage rates by just 0.05%.

Kelly says the decision by ANZ to decouple itself from the RBA and make independent interest rate calls had been helpful for others banks and had probably been more helpful to Westpac than ANZ.

The Bank of Queensland has already lifted its standard variable rate by 10 basis points to 7.46% following the RBA decision to keep rates on hold on Tuesday.

The Commonwealth Bank, National Australia Bank and Westpac have all refused to rule out further independent rate moves this month.