Low interest-rate peak would tie RBA’s hands
WESTPAC chief executive Peter King has warned that a forecast peak cash rate of about 2 per cent in the current cycle would leave the Reserve Bank with little firepower to manage the next crisis.
With RBA governor Philip Lowe now conceding that a rate increase this year is “plausible”, Westpac’s economics team believes the first hike in 11 years will be in August, rising to a peak of 1.75 per cent.
“The most interesting thing about that is it’s very low,” Mr King said during a panel discussion at an Australian Banking Association conference in Sydney.
“That’s something you actually have to think about – how do you run your organisations or your bank?
“There’s not a lot of flexibility for the Reserve Bank if something goes wrong because we’re so low, and we’re spending more time on that rather than when the (tightening cycle) actually starts.”
While many borrowers had never experienced a rate in
crease, Mr King said the impact would be lessened by the banking industry’s practice of assessing loans with a buffer.
A lot of borrowers were therefore ahead of their repayments schedule, so there was flexibility in the system.
Bendigo and Adelaide Bank chief executive Marnie Baker said official rates were likely to sit in a range of 0-2 per cent “for some time”.
“But there are buffers to ensure that people don’t get into trouble,” Ms Baker said.
“About 43 per cent of our borrowers are ahead by 12 months and 33 per cent are ahead by two years.”
At the conference, Mr King also dipped into the contentious area of payments reform.
His counterpart at Commonwealth Bank, Matt Comyn, has called for parliament to regulate the rapid growth of Apple and its iPhones in the payments system. Mr Comyn has also said that Apple Pay had cornered 80 per cent of smartphone “tap and go” payments, and that restrictions on bank access to iPhone chips communicating with payment terminals were anti-competitive.
Mr King said Australia should control its financial system and payments.
“The first thing is that the phone is becoming the bank – it’s 24/7, so one of the interesting outcomes is who has the ability to influence the phone can influence how the system works,” he said. “I think that’s the heart of the issue.
“Under the regulation, and certainly a feature for us is that the phone is singularly controlled by Apple, it would be beneficial for all participants if there were access to it.”
The banking industry, he said, had to upgrade its capabilities and compete with Apple.