Why Bank’s can’t pass on all the RBA Cash Rate drop

Commonwealth Bank chief Ian Narev has flagged there is only so much official rate cuts can do, as he issued a fierce defence of the decision to hold back half of the Reserve Bank’s reduction from mortgage holders, arguing the lender’s deposit customers and shareholders were not the “elite of Australia” who had instead benefited.

Turnbull & Shorten have both gobbed off, beating their chest saying that banks should have passed on all of the RBA’s August Cash Rate drop instead of about half.

The banks have depositors and investors who are relying on interest rate returns and dividends. This inconvenient truth has escaped Turnbull and Shorten. You would expect this to escape Shorten as he is willingly blind like the rest of the Left and his union mates. Turnbull however, we would expect him to have some understanding of these things.

I guess we should expect him to politic somewhat but the truth is, the economy is not going that well and is reliant on the government to do it’s fair share of lifting and not simply relying on the RBA and future growth. This plays negatively on Turnbull as he really does not have an economic plan for Australia now that his personal ambition of personal power in being Prime Minister has been fulfilled.

Both Liberal & Labor know that growth forecasts in the budget over the forward estimates are too high. We will not see a return to previous growth levels anytime soon. I believe we will not see a return until we get our national finances sorted out. That means paying of the national debt, something that neither party is committed to. Again, you wouldn’t expect Shorten to as Labor has not run a budget surplus since about 1984. As for Turnbull, again, we did expect a bit more from him. At least Abbott & Hockey attempted some fiscal responsibility in the 2014 May budget however they simply didn’t sell it well enough. The economic wreckers in Shorten and Bowen dominated the public debate and fed the left wing media who did their bidding for them and crucified Abbott & Hockey for attempting some badly needed fiscal discipline.

Narev alludes to what the core problem is;

“So we’re expecting over the next 12 months pretty much an economy that feels like more of the same, but we do see risks to the downside if levels of confidence driven by external events go down and that continues to keep confidence low,” Mr Narev continued.

“In this sort of environment, we do need to be a bit more conservative.”

Confidence is low. Who’s confidence? Confidence in what? Business confidence and consumer confidence, that’s what. And what is this based on? Business confidence is assurance that their business can make a decent profit, earn a return on investment and begin to fulfil growth goals. This also equates to not laying off workers.

What do consumers have to be confident in? It is continued income; job security. Confidence that they will still have a job in 3-6-12 months time. This is driven by business confidence. Consumers can be confident to spend when they are confident their jobs are secure, and they will feel secure when their employer can be confident to grow and not shrink back and cut staff. It’s all about jobs. And first comes business confidence.

Businesses need to feel confident about the political environment. If the government can relieve business of the burden of bureaucracy, union pressures and taxes, then business can have more confidence and so can consumers.

Until this government seeks to make the business environment stronger by reducing red tape, reducing the risk if industrial strife and reducing the burden of taxes, only then will business gain confidence with the flow on to consumers in job security. Then businesses will invest with confidence and consumers will open their wallets and begin spending again.


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