RBA’s Philip Lowe lashes banks over credit card rates

RBA chief tells Canberra inquiry Australians are getting smarter about better mortgage deals but says credit cards charging huge interest need to be dumped.

RBA governor Philip Lowe says Australians should shop around for a better deal on credit cards.

The central bank governor has urged Australians to abandon credit cards with interest rates in the double digits, telling a Parliamentary hearing he is “frustrated” with the interest burden pushed by some lenders.

Appearing in front of a house economics committee hearing in Canberra on Friday, Reserve Bank Governor Philip Lowe said that Australians should move away from high-charging credit card rates.

“I have, um, frustration that there is still credit cards in the Australian marketplace with interest rates around 20 per cent,” Dr Lowe said.

“People write to me all the time saying ‘this is a disgrace, how can this possibly be’, and I have to say I don’t have a good response for them other than there are credit cards in the Australian market place with much, much lower interest rates.

“Some with perhaps high single digits. And as I say to people with mortgage debt – shop around – because there are good products out there in the marketplace that offer people much better deals.”

Dr Lowe has long gone on the record urging Australians to refinance in order to free up their spending capacity as interest rates fell to new lows last year.

On Friday he said this campaign had been a success, with ABS Lending Indicator data showing at least 237,632 people have refinanced their mortgages since the pandemic began, and urged Australians to apply the same mentality to credit cards.

“I’ve been giving that advice to people with mortgages all the time, and that’s actually been working because we’ve seen the average mortgage rate being paid by Australians decline over the past six months by quite a lot,” he said.

“If you have a credit card with a high interest rate and you don’t like it, go and find another one.

Reserve Bank governor Philip Lowe. Picture: Getty Images.

“If collectively, we as Australians do move to the better products, then the banks will have to withdraw the bad ones.”

Elsewhere in his testimony, Dr Lowe did not explicitly support the idea of lowering the deeming rate to assist retirees reliant on interest income, saying it was up to the government.

“That’s a matter entirely for the government … We do know though that it’s older people that earn most of the interest income,” he said.

“For many people who are over 65, interest income has been a substantial part of the income.

“Twenty per cent of them earn 20 per cent of their income from their interest historically.

“Many of those people also have other financial assets … so there is some offset in terms of the value of their assets – how the government kind of plays all that out, I’m not sure.”

Dr Lowe, who has previously asked retirees to think of the “collective good” of the economy in relation to the cash rate, reiterated the point on Friday.

“Lower interest rates are helping the economy,” he said.

“That means more people are in jobs that might otherwise be the case.

“The people that have a job might be a child or your grandchild, and the society in the end, as a collective, is going to be better off if more people have jobs.”

During the hearing the representatives from the Reserve Bank were asked about the future of cryptocurrency and cash in the Australian economy.

Assistant Governor for Financial Systems Michele Bullock said cryptocurrencies like bitcoin are “not a payment instrument” and “not even really money,” but said the RBA was talking with its international counterparts about the future rollout of “stablecoins” like Facebook’s proposed digital currency, Diem.

Dr Lowe said advancements in the digital payments developments made the future of cash an open question.

“The number of payments made with banknotes is declining … It is a question we are currently grappling with and we don’t know the answer to: In ten or 15 years time are people still going to be using banknotes?’” he said.

“It could well turn into a bespoke product.”