‘Furious’: Treasurer reads riot act to banks over interest rates

The Treasurer has read the riot act to banks that are failing to pass on soaring interest rates to savings account holders.

Jim Chalmers says he understands why Australians are “furious” with banks that have raised mortgages but not passed on higher interest rates to deposit holders.

With the cash rate now at 3.35 per cent, its highest in more than a decade, the Treasurer has put the nation’s banks on notice to ensure they are passing on interest rates to customers with savings accounts.

Dr Chalmers also revealed he “speaks frequently” with embattled Reserve Bank governor Philip Lowe, whose future as the head of the central bank is under a cloud.

“Governor Lowe and I talk frequently about the economy. We talk frequently about the bank itself,” Dr Chalmers told reporters at Parliament House on Thursday.

But Dr Chalmers said he would never direct Dr Lowe on interest rate decisions.

“I don’t ring up the Reserve Bank governor on the morning of the board meeting and say this is the outcome that the government wants,” he said.

Dr Chalmers this week tasked the Australian Competition and Consumer Commission to look into how banks set interest rates for savers, including differences in interest rate increases between bank deposits and home loans.

Treasurer Jim Chalmers has tasked the ACCC with investigating the banks. Picture: NCA NewsWire / Gary Ramage

“I understand that people are furious when mortgage rates go up and they got much lower or not at all (for saving accounts),” he said on Thursday.

“This is the reason why I asked the ACCC to do some work in the space because we want to make sure that banks are doing the right thing here.

“I think there is a lot of community anger about this.”

Australian households together hold more than $1.3 trillion in savings and deposit accounts and the ACCC’s probe into deposit pricing is due to be report to Dr Chalmers by December 1.

Dr Chalmers said he had spoken to Dr Lowe on Wednesday night, shortly after the governor was grilled at a Senate estimates hearing over the RBA board’s decision to raise the cash rate nine consecutive times.

Dr Lowe told the hearing he didn’t feel like the RBA’s independence was under attack, saying the government had left it alone to manage monetary policy.

“The Treasurer and I haven’t really spoken about interest rates. That’s the way we operate. There’s no pressure from Treasurer Chalmers,” he said.

“It’s noisy, but raising interest rates is always unpopular.”

Reserve Bank Governor Philip Lowe’s future as the head of the central bank is under a cloud. Picture: NCA NewsWire / Gary Ramage

Asked what he would tell renters and mortgage holders who were “getting smashed” by interest rate increases while the major banks pulled in “megaprofits”, Dr Lowe said he knew people were struggling.

“I get a lot of people writing to me at the moment telling me about their personal circumstances and it’s really, really tough, I understand that,” he said.

“Personally, I find it disturbing. People are really hurting, I understand that, but I also understand that if we don’t get on top of inflation it means even higher interest rates and more unemployment.”

But Dr Lowe said Australian needed its banks to be profitable in order to be able to provide essential financial services.

“I know it’s hard for people to accept when they’re suffering problems with their personal finances,” he said.

Dr Lowe, whose seven-year term as governor will expire in September, has attracted intense criticism for saying he expected interest rates to remain low until 2024.

Many Australians took out mortgages off the back of that advice when the cash rate was set at a historic low of 0.10 per cent during the Covid-19 downturn.

The RBA rapidly raised the cash rate since then to 3.35 per cent, with economists tipping at least two more hikes in the next few months.

Originally published as ‘Furious’: Treasurer reads riot act to banks over interest rates