Sign up for Guardian Australia’s free morning and afternoon email newsletters for your daily news roundupīut the RBA is far from neutral. If the RBA were a neutral umpire, managing the economy to maintain stability in a way that benefits all of us, we could be comforted by the idea that the ups and downs will balance out in the long run. But interest rates go down as well as up. It’s easy enough to see that higher interest rates help bank profits and harm borrowers. But as far as ordinary households are concerned, it’s the margin between the return on savings and the cost of borrowing that matters. The RBA plays down this finding, arguing that banks may find ways to maintain profitability in a low-interest environment. In June this year, the RBA published a discussion paper looking at the impact of interest rates on bank profitability, which starts with the observation “there is widespread empirical support that lower interest rates are associated with a decline in banks’ net interest margins” (that is, the difference between the banks’ own cost of funds and the rate they charge to borrowers). Westpac’s massive profit should also not surprise the Reserve Bank of Australia.
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