CBA vs RBA

CBA the Usurper

FYI, this is not a legitimate rant. More like a raging conspiracy theory. So polish off that old tin foil hat and enjoy.

A new Reserve Bank of Australia (RBA) Governor – a new interest rate decision. Congratulations to Philip Lowe on his appointment as the Governor of the RBA, and his first milestone – the monthly interest rate decision (unchanged at 1.5%).

Lowe inherits some interesting circumstances – record low interest rates and a struggling Australian and global economy. As interest rates approach the dreaded zero lower bound and become less and less effective at stimulating the economy (especially when the government is so deficit-obsessed and unwilling to support the economy with stimulus spending), Lowe may have to reach into the RBA’s bag of tricks and pull out some non-conventional tools – additional pressure on government to enact stimulus spending, forward guidance, negative interest rates, quantitative easing, long term interest rates, and even (as a last and hopefully unnecessary resort) ‘helicopter’ money transferred directly to the government.

But there’s a new challenge that may be emerging for him that I have never seen before (maybe I just haven’t been paying attention). When the RBA last lowered interest rates in August, Australia’s big 4 banks (unsurprisingly) didn’t pass on the full 0.25% cut to their customers. Consequently, the CEO of the Commonwealth Bank of Australia (CBA), Ian Narev, tried to justify this decision – in light of their record $9.4 billion profit – by saying that passing on the full rate cut would have hurt CBA’s depositors/ savers. This is true. It would have. However, he followed it up with (paraphrasing) “therefore, it would be better for the economy if we don’t pass on the full cut”.

Hang on! Did the CEO of CBA just admit that he not only disagrees with the RBA’s decision, but is actively trying to undermine it? True, the CBA has its own stakeholders to consider – lowering interest rates would help borrowers but hurt savers, so it is justifiable to balance these demands. But to suggest that their actions were driven by a desire to do what is better for the economy goes beyond CBA’s terms of reference. The CBA is not the RBA, and they do not get to make this call. This isn’t just arrogant. To think that you know more than the RBA and are therefore going to undermine their decision is scandalous. If this was just CBA’s attempt to balance the needs of conflicting stakeholders, then fine. But don’t say that it is for the good of the economy – because that is not your job. It’s the RBA’s job. And it undermines their credibility – something that is essential for a Central Bank – to suggest that you can and do try to undermine them.

Remember what I said at the beginning of this post? To be honest, I don’t actually think the CBA is trying to usurp the RBA’s authority. I’m sure it was just an off-the-cuff comment by the CEO of CBA to justify a huge profit and a piddly interest rate cut. It’s just fun to think about it in terms of economic and political sabotage. CBA actually used to be Australia’s central bank, while simultaneously being a commercial bank. Conflict of interest, much? Hence why the RBA was formed in 1960. How exciting/ terrifying if CBA suddenly decided they wanted that power back.

*cue evil laugh*