RBA rate rise means depositors finally get a break

Thank goodness, say a few million Australians, we might finally start to get something half-approaching a fair interest rate on our bank deposits.

Why is it that the media and the politicians – there was a still (very) wet-behind the-ears young Jim Chalmers lamenting the “very challenging news” of the Reserve Bank’s rate hike – think only about borrowers?

To them, depositors are invisible.

What about sparing a thought for those depositors, who for the last two years have been getting zip, zero, nothing, nada interest – and have lost about 10 per cent of the real value of their money in that time, thanks to that inflation steaming down the highway like a 24-wheeler, that the RBA couldn’t see coming.

Now they might at least get a miserable 1 per cent or so, or whatever the banks might deem appropriate in their great ‘generosity’.

While the real value of their money continues to shrink, with inflation running at 7 per cent and heading higher.

The RBA was quite happy to directly give the banks $188bn of free money – an interest rate of just 0.1 per cent – and ensure they got even bigger sums of $2 trillion or so from ordinary depositors and the money market, at zero from the ordinary punter, a little more from the pros.

Treasurer Jim Chalmers. Picture: John Gass

Which the banks then slapped a 200 point-plus margin on and happily pumped out the door by the hundreds of billions of dollars to all those home-buyers, paying very high prices for their properties.

So just exactly who is to blame now that their repayments are going up, as they always had to?

On very large borrowings, thanks to the explosion in property prices?

The banks? The RBA? Yes and very especially yes.

As the latest APRA data shows there was just on $2 trillion out there of housing loans.

Around $1340bn was to owner-occupiers and around $660bn to investors.

Investors get at least a tax deduction for their interest payments, so that a, say, 4 per cent rate is actually 2 per cent after-tax rate for many.

That’s if they are not actually getting a cheque from the Tax Office because they’ve negatively geared.

Don’t cry for any of them getting a rate hike – especially from what were ridiculously, panicked near zero rates.

On the other side of the coin, there is actually more money from depositors, now finally getting – correction, at the very start of maybe getting – a half-way fair shake.

APRA shows there are close to $2.6 trillion of bank deposits.

Of that, the biggest chunk of some $1400bn came from households.

Hmm: $1400bn of household deposits and $1340bn of owner-occupied home loans.

I’d say it’s pretty close to a wash, as to who benefits and who loses.

And it’s a no-brainer when you factor in that rates were absurdly, punitively, seductively – for borrowers – too low; and are still way, way below the inflation rate.

So in real terms it’s still ripping off depositors, big time, to send free money to borrowers, with banks clipping the ticket on the way through.

Now there are three big things to understand about the RBA and so where we go from here.

As I keep trying to tell you, it really will take it ‘month-to-month’ based on what the RBA thinks is happening, and developing.

As RBA governor Philip Lowe explicitly put it: “The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation”.

But this is an RBA that also believes inflation will be all-but back below 3 per cent next year.

Why? Reference how it believed, even into this year, inflation wouldn’t go above 3 per cent until 2024 until reality hit it in its collective face.