There's been a 10 point easing of monetary policy over the past six to nine months despite the Reserve Bank leaving its cash rate steady.
That's the extent of bank interest rate discounting that you won't read about because it's not put in writing. It's also why the laggards in abandoning forecasts of another official interest rate cut have been so remiss – there was an unofficial one happening anyway.
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The European Central bank moved to negative interest rates, while our own central bank officially did nothing with theirs but actually allowed monetary policy to ease 10 points. Michael Pascoe comments.
Various official figures record banks' published rates, but not what they are actually charging for loans. Discounting is now so rife that the banks' "official" variable rate home loan rates are up there with the Easter Bunny, Tooth Fairy and Joe Hockey's budget crisis.
And while the discounts are greatest for those borrowing the most, they are universally there for the asking. Any borrowers paying full fare are most likely to be guilty of subscribing to The Checkout's "Lazy Tax" – there's never been a better time to shop around.
The banks have become stuck in a web of their own making with the unofficial discounting. They are loathe to cut their official benchmark rates because of the hit they'd take on their massive book of established loans – they rely on the inertia of the vast majority of their customers to sit pat and not renegotiate or move.
But at the same time, as their book of discounted loans grow, any future move of the benchmark rates will hurt the banks' bottom line more. It's a delicate balancing act.
As a marketing tactic, the never-put-in-writing extent of discounts allows a banker to appear to offer a customer "special" status. A consumer never feels more chuffed when he or she thinks they've pulled off something exclusive.
Banks are relying on well-briefed brokers to avoid advertised prices keeping would-be customers away. With so much lending now done through brokers, the official rates matter less and the brokers are made to look better by the extent of the discount they appear to pull out of the banking hat.
As Clancy Yeates has reported, some of the discounting has come at the cost of a slight compression of interest margins, but most reflects cheaper funding costs.
Aside from the domestic household savings ratio holding up, the major Australian banks have a long list of foreign institutions and corporates increasingly willing to lend them money. Second-tier banks for that matter are getting set with deals the world would not have wanted to know about just a little while ago.
The Chatham House Rule applies, but I'm assured a fascinating range of central banks and major corporates are seeking Australia's stability, high credit rating and some sort of return on the pools of cash they're sitting on. In the case of several obvious multinationals, those pools are the size of some small nation's seas.
And that was before the move by the European Central Bank overnight charge banks for holding their reserves, cutting the interest rate it pays on deposits to minus 0.1 per cent as it pushes harder on the piece of string that is Europe's monetary policy.
The United States is tapering its money printing, but the Federal Reserve continues to pledge to keep rates lower for longer anyway. No wonder it is easy for Australia's prime institutions to obtain funds.
Unlike the occasional headline-grabbing alarmist, other central banks and major institutions aren't particularly concerned about the danger of a housing bubble here in the style of Ireland/US/Spain et al. They appreciate that, unlike many American states, our home loans are not non-recourse, making the "jingle mail" of forfeited properties less likely. As owner-occupiers' interest is not a tax deduction, we have an incentive to pay off our loans quickly rather than let them ride indefinitely. We have underbuilt rather than overbuilt for the past decade and we're enjoying remarkably strong population growth underpinning demand. It would require a major surge in unemployment to provide a credible risk of a housing crash – and even with that scenario, that last time Australia had a recession, housing prices held up.
Banks here remain cautious in their lending – some would argue too cautious. And that keeps willing lenders coming to them.
When banks were failing to pass on all of the RBA's rate cuts, it was sometimes overlooked by populist politicians and media that the RBA targets the rates people actually borrow at, not the rates that banks publish. The same thing has been happening in reverse for several months – the RBA has maintained a steady cash rate while letting monetary policy quietly ease a wee bit more. Just don't expect to read about it.
Michael Pascoe is a BusinessDay contributing editor