Next month, Glenn Stevens ends his tenure as Governor of the Reserve Bank of Australia (RBA). In the past a new Governor would have a major impact on investors. Yet now, a changing of the guard is hardly noteworthy.
Undoubtedly, this is partly because there has been steady and consistent management of the RBA and monetary policy for years. But it is also partly because, for borrowers, the game has moved on.
This week, the RBA reduced interest rates by 0.25 per cent, yet the major banks only passed on around 0.12 per cent of this cut. For many investors, there is now a more formidable government regulator that determines interest rates.
Decisions by the Australian Prudential Regulation Authority (APRA) arguably have a bigger impact on investors than those of the RBA these days. This week, APRA announced a policy explicitly impacting the Big Four plus Macquarie Bank. These banks are now forced to put aside more cash to mitigate against defaults etc of risky lending.
These decisions will have a direct impact on the rates that you and I pay on our loans. As banks are forced to squirrel more money away for a rainy day, they are forced to increase rates elsewhere to ensure shareholder return.
Investors should still maintain a sharp eye for interest rate announcements from the Reserve Bank at 2.30 on the first Tuesday of every month. But obscure announcements from APRA could have just as much impact on investors.
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