Your bank might be putting its interest rate up by more than it needs to. Here’s why

Amid real cost of living pressures, how would you feel if you knew the big four banks were raising the cost of your mortgage to pump up their profit margins?

It appears the banks are using a lack of understanding about how monetary policy is implemented to charge mortgage borrowers more than their costs are actually rising.

In short, the Reserve Bank has made the cost, for the banks, of sourcing funds for their variable rate mortgage products more expensive.

What’s also true is that, as of right now, the banks have overstated what that cost is. Let me explain.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume.

Play Video.  Duration: 6 minutes 32 seconds

Reserve Bank lifts interest rates for the first time in over a decade

The RBA’s cash rate target

On Tuesday at 2:30pm eastern time, the Reserve Bank of Australia announced it was formally raising its cash rate target.

But it’s just that, a “target”.

The cash rate, on the other hand, is the interest rate on unsecured overnight loans between the banks. It’s an actual interest rate in use on financial markets. The higher it goes, the more it costs the commercial banks to borrow money in the very short term.

.

Leave a Comment