Your questions answered by an industry expert
Looking ahead to the next interest rate cut.
Can you please give us an indication of how the credit markets are going and how much of the next interest rate cut we are likely to see come through?
What is the difference between what the banks are doing now and price collusion in other industries? I heard before the last cut that we were likely to see the whole cut passed on and maybe even more, but then the CBA came out and cut by only 0.58% and all the other lenders pretty much followed suit give or take 5bps. Chris, Sydney.
The overall credit markets have improved from the worst point of the credit crunch, and on November 4 The Australian newspaper reported that the gap between Australian interbank lending rates and cash rate expectations had narrowed to levels not seen since before the Lehman Brothers collapse and the following global financial markets panic mid-September.
Then the spread between the benchmark 90-day bank bill swap rate set and the three-month overnight index rate narrowed to 54 basis points, in from 64 basis points and well down from its peak of 144 basis points early October.
The current spread is the lowest it has been since September 14, which just preceded Lehman Brothers' bankruptcy filing.
Since then the markets endured more turmoil when US treasury Secretary Paulson changed his mind on the bank rescue strategy and the spreads increased. But the latest $US600 billion for Fannie Mae and Freddie Mac has been headlined as a big thawer for frozen consumer credit markets in the USA.
I agree there's virtual price collusion, but they are all borrowing at similar rates though the bigger banks are probably getting slightly cheaper funding.
Remember, a few months ago banks were offering 8% and more for deposits as they found it hard to get money from overseas. I am prepared to give the banks a bit more time before I resume bank bashing. When credit markets are close to normal I will resume the bashing for them to pass on the rate cuts they 'owe' us.
I think having healthy banks when many banks overseas have needed governments to save them will be an Aussie strength that will eventually pay off for banking customers down the track.
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