Rates could be worse: ABA

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Had the major banks just followed RBA moves, the official cash rate would be much higher, according to the head of the Australian Bankers Association.

Steven Munchenberg, chief of the ABA, told The Australian that at the moment, the spread between mortgage rates and the official cash rate is about 100 basis points above the historical average.

“That’s taken into account by the RBA,” he said. “We think the official cash rate could be higher if the banks had just followed the RBA moves.”

While the major banks have been criticised by government for lifting rates out of step with RBA movements, Munchenberg says banks needed to better explain the reasons for doing so.

He admitted that justifying independent rate moves is particularly difficult given reports of record profits.

According to Munchenberg, Australian banks need to be highly profitable to attract international investors.

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