Westpac’s Banana Republic

EDITORIAL THURSDAY 10.12.09.
Interest rates are rising, unemployment is falling and the Westpac Bank is apparently selling banana smoothies. Today’s unemployment figures have unexpectedly shown an increase in fulltime jobs and a fall in overall unemployment, down from 5.8% to 5.7%. Yes, it is only a modest fall, but the crystal ball gazers were expecting any movement to be up not down. Even more significantly, this is the second time this year that the number has fallen against expectations. After peaking at 5.9% in July, the rate fell to 5.8% in August where it has remained steady until now, despite predictions of a peak around 6.5%.

So what happened to all the doom and gloom and predictions of unemployment reaching 8.5% or even higher? Does this second fall mean that the peak has passed and the recovery from the Global Financial Crisis is powering ahead? At the very least it is a positive sign for the Australian economy, and at the best it could well mean that we are actually on the way out of the woods that everybody seems to be so fond of talking about. Of course the risk of further international instability still means that we shouldn’t count chickens which have not yet hatched. What we can count on however is that we are likely to see more interest rate increases as a result.

Meanwhile, the happy folk at Westpac have been busy explaining themselves after increasing mortgage rates by 20 basis points more than the official rate increase. Princess Gail Kelly seems to think it has something to do with the price of bananas, although how the price of bananas can affect interest rates is something I haven’t quite figured out yet. Perhaps it has something to do with the banana republic economy Paul Keating warned us about years ago, or perhaps Westpac executives just think of their customers as monkeys.

Either way, this will not be the end of it. As the recovery continues, official rates will rise further and banks including Westpac will continue to increase their rates too. Never mind that rates are still considerably lower than they were before the crisis hit, there will still be complaints every time they go up over the next twelve months. But given the severity of the public backlash against Westpac this time, I wonder if they will be quite so enthusiastic about leading the way to higher rates next time around.