EDITORIAL MONDAY 08.02.10.
Stand by for another round of interest rate rises. No, the Reserve Bank hasn’t had an emergency meeting, and the official rate is holding steady for the moment. But the Federal Government has announced the end of its guarantee for bank borrowings. Introduced at the height of the Global Financial Crisis, the guarantee meant that Australia’s banks, building societies, and credit unions could borrow wholesale funds from overseas at the best possible rates thanks to the Federal Government’s Triple A credit rating. Now that the worst of the crisis appears to have passed, the government believes that the guarantee is no longer necessary and it will be discontinued at the end of March. The similar guarantee for state governments will cease at the end of December.
In making the announcement, the Treasurer Wayne Swan warned the banks not to use this decision as an excuse to increase interest rates independently of the Reserve Bank. He said, “If any major bank were to attribute some move above the Reserve Bank’s to this decision they would be wrong and would incur the wrath, not just of the Australian people, but of the Australian Government.” Just what the Australian Government might actually do about any such increase has been left to the imagination, but if past performance is any indication at all we can expect the banks to be flagellated with a limp lettuce.
The Australian Government, specifically the current one, has become very good at expressing its wrath, its concern, and its indignation about a good many things, but has yet to actually do very much about any of them. Expressing concern about rising petrol prices led to yet another inquiry, an abortive attempt to establish a website, and a lot of vocal condemnation. But motorists are still at the mercy of oil companies manipulating the petrol price cycle in convoluted ways that most of us don’t really understand. Expressing indignation about grocery prices led to, yep, another inquiry, another website which did actually get up and running briefly at great expense, and a lot of vocal condemnation. And yet we are still witnessing the effects of a duopoly controlling not only the grocery market but also much of the supply chain. Expressing anger at Japanese whaling in our Southern Ocean has resulted in threats of legal action, an excursion on the Oceanic Viking which observed nothing of any relevance, and lots of vocal condemnation.
On that basis, the banks have nothing to worry about. Next month, the chances are that the Reserve will increase official rates. When they do, don’t be surprised if the retail banks tack on a couple of extra basis points. They might say it is due to “international conditions” and they might even say that it is due to the removal of the guarantee, but the bottom line is that if their number crunchers come to the conclusion that they need to increase rates to protect their profit margins, then that’s exactly what they will do, whatever the official excuses or explanations. And there is nothing that Wayne Swan can or will do about it. The supposed “wrath” of the Australian Government has all too often turned out to be all thunder and no flash.