Developments in Australian Bank’s Funding Costs and Lending Rates

Abstract

This paper focuses on the funding costs and the lending rates of banks in Australia. As the world emerges from the COVID-19 pandemic, more and more countries need to change their financial policies to fit the new situation. In this trend, the central bank of Australia, which is the Reserve Bank of Australia, plans to increase its cash rate to stop or reduce the starting rate of inflation. Through analyzing the report from the Reserve Bank of Australia (RBA) and articles from related academic works of literature, this writer found some points to understand, evidence, and analyze. It also analyze the importance of the Australian central bank to change the cash rate. After analysis, the result shows that due to the change in the confidence of customers and the increase of the rate of inflation after the COVID-19 pandemic, the central bank had to increase the cash rate. Through tighter financial policies, the central bank planned to stabilize the economy of Australia. Meanwhile, the pressure of Australian banks grew as the funding cost increased and the requirement for home mortgage loans decreased. For future research on the cash rate, it is advised to evaluate that if the continuous increases in cash rate are overused in the future. This might need at least half a year or even longer time to wait for the impact of the policy and the effect on the market and the banks.