Time to let go the apron strings

But Governor Glenn Stevens said the pre-emptive tightening of monetary policy was prudent to curb "growing inflation concerns".

By lifting the official cash rate by 25 basis points, the Board effectively opened the flood gates for Australia's major and second tier lenders to move out of cycle.

All four majors moved above and beyond the RBA's rate hike, sparking a political and consumer backlash.

In response, the majors pointed out that their rates were not linked to the cash rate and their decisions were made independently of the RBA.

There is certainly evidence to back the banks' claims in recent years. No one has denied funding costs have risen dramatically compared with pre-2007 rates.

But if this is the new normal, why is it that the majors wait to see what the RBA does with the cash rate before making their own rate announcements each month?

A couple of weeks ago, National Mortgage Brokers' managing director Gerald Foley asked me if the banks lifted their rates before the RBA, would the Board still have increased the cash rate?

Later that week, when I caught up with AMP's chief economist Shane Oliver, I decided to broach the question with him.

According to Mr Oliver, had the banks moved before November's, it might have stopped the RBA from lifting the cash rate altogether.

He added that a 25 basis point rate increase by each of the majors would have the same impact as a 0.25 per cent cash rate hike, saving borrowers up to 20 basis points on their current home loan rates.

But even if the banks did decide to move before the RBA, Mr Oliver says the Board would still increase the cash rate...eventually.

So, what can we take from all of this? Is it time for the banks to stop hiding behind the RBA - with whom they are, purportedly, in no way aligned - and to start making their own decisions on rates before each board meeting?

Can we expect this to happen in the future?

Only time will tell.

Jessica Darnbrough
Editor