The risk of independent rate increases by retail banks, which has sparked a political brawl, may also mean the Reserve Bank of Australia (RBA) will tread carefully until it finally lifts the cash rate.
Opposition treasury spokesman Joe Hockey this week called for the treasurer to legislate, if necessary, to ensure banks don’t raise mortgage rates higher than RBA moves, given Treasurer Wayne Swan’s warnings have so far been ignored.
Former Liberal leader John Hewson said that while he was not taking a specific view on Mr Hockey’s proposals, he understood the frustration from the lack of a truly competitive banking structure.
“It’s amazing how they seem to all move their rates together at all about the same time,” he told Sky News on Friday.
Treasury Secretary Ken Henry told a Senate hearing on Thursday that a return to the regulated interest rate regime, that ended in 1986, would be difficult when there was a central bank independently operating monetary policy.
Labor frontbencher Craig Emerson said regulation would be a return to mortgage rationing.
“It would be low-income people who would just not get a loan,” Dr Emerson told the Network Ten on Friday.
But Liberal frontbencher Scott Morrison said the shadow treasurer was not suggesting that interest rates be regulated.
“What Joe Hockey has flagged is everything from backing claims from the ACCC chair on price signalling and controlling over that,” he said in the television debate with Dr Emerson.
The banking industry is concerned that this has become a “one-sided” public debate, more so with the calls for the competition watchdog – the Australian Competition and Consumer Commission (ACCC) – to be given additional power to curb so-called bank “price signalling”.
“If new ACCC powers allow everyone to comment, except the banks, then the public debate will be missing the key input – information from the only sources that have the most up-to-date information,” Australian Bankers’ Association chief executive Steven Munchenberg said in a statement on Friday.
RBC Capital Markets senior economist Su-Lin Ong said the banks’ increasingly vocal pronouncements of independent rate rises has also led to some uncertainty as to when the central bank may raise rates.
She said that while there was a need for a modest tightening in monetary policy, a move now had to be compelling.
“Especially if there is a risk that a 25-basis-point hike translates to a rise in variable mortgage rates of 35 to 40 basis points and a creep closer to eight per cent in standard headline mortgage rates,” Ms Ong said.
Still, data released on Friday suggested an official rate rise remained on the cards.
The Australian Bureau of Statistics international trade price indexes showed another surge in the nation’s terms of trade, led by higher coal and iron ore prices.
Export prices rose a further 7.8 per cent in the September quarter after a record 16.1 per cent in the previous three months.
Import prices rose just 0.7 per cent in the September quarter.
“The RBA has continually reinforced the powerful lift to spending power that results from higher commodity prices, and has also warned of its inflationary consequences,” said JP Morgan economist Ben Jarman, who expects a rate rise in November.