No link between bank lending rates and RBA cash rate: ANZ

The myth that banks’ lending rates are linked to the Reserve Bank’s cash rate is one that needs to be busted, says Phil Chronican, CEO of ANZ Australia.

Speaking at an American Chamber of Commerce in Australia luncheon Chronican said commercial banks’ cost of funds had gone up and were now disconnected from the interest rate set by the RBA.

Emphasising the recent campaign to set rates independently of the RBA, Chronican said the bank now assessed changes to all sources of funding, including the price of obtaining domestic and offshore funding; the interest rates it paid on consumer deposits and the cash rate set by the RBA when making interest rate decisions.

AAP reported Chronican as saying that this disconnect had begun at the start of the GFC

“That linkage, if anything, only arose in the early 1990s and persisted in a period of extended stability in financial markets,” he said.

Chronican blamed banks themselves for allowing the perception of a link to persist.

“It saves having to explain why home rate loans are going up and down when there was an easy scapegoat to be had by always blaming the RBA," he said.

Chronican led ANZ’s decision to set its interest rates independently on the second Friday of every month rather than following RBA announcements.

He has consistently argued of late that bank wholesale funding costs are on the rise.