Calls from former Reserve Bank of Australia (RBA) board member Warwick McKibbin and central bank experts Mark Crosby and James Morley for Governor Philip Lowe to lift the official cash rate, suggesting the current rate is "unhealthy", are at odds with Lowe's public stance. This stance was aired again at the European Central Bank (ECB) forum in Portugal last week where Lowe found himself to be the "odd man out".

Calls from former Reserve Bank of Australia (RBA) board member Warwick McKibbin and central bank experts Mark Crosby and James Morley for Governor Philip Lowe to lift the official cash rate, suggesting the current rate is "unhealthy", are at odds with Lowe's public stance. This stance was aired again at the European Central Bank (ECB) forum in Portugal last week where Lowe found himself to be the "odd man out".

McKibbin also calls for the dumping of the 2-3% inflation target and replacing it with a nominal income goal. Not everyone agrees. Former deputy governor Stephen Grenville suggests raising intertest rates and removing the inflation target is "unnecessary and unwise".

The US Federal Reserve (the Fed) has hiked seven times since it started tightening monetary policy in December 2015 and the ECB will cease buying bonds in December and perhaps begin raising rates in 2019. Lowe finds himself out of step, but from his standpoint, with soft wages growth and weak inflation together with highly leveraged households, his hands are tied. He cited the lack of wages growth on falling union membership, increasing fear of competition and rising labour supply (probably due to immigration). He told the forum, "I think those factors are going to be around for a long time".

Australia's situation is different to those of the U.S. and the European Union. The RBA did not have to go to the extreme measures of the central banks of the U.S., the European Union, Japan or the United Kingdom. It did not have to cut rates to zero or buy trillions for dollars and euros worth of bonds and other financial assets after the GFC. Australia navigated the GFC better than most.

The mid-point of the current federal funds rate range is 1.875% and is 33% of the long-term (1971-2018) average of 5.7%. Australia's official rate of 1.50%, similarly sits at 33% of the medium-term (1990-2018) average of 4.56%. So how far behind the U.S. are we? We are certainly in front of the Eurozone. This, before the trillions of dollars and euros in bonds that need to be sold to normalise the balance sheets of the Fed and the ECB. Australia's RBA has no such baggage.

The reference to the next rate move being a hike rather than a cut was absent from the minutes of the June meeting of the RBA board. Lowe has publicly admitted the next increase may be further away than previously thought. But while Lowe may be reticent to move officially, unofficially the banks may tighten. The Bank of Queensland cited higher funding costs for increasing its variable rate for owner-occupier principal and interest and interest-only loans by nine and 15 basis points respectively to 4.56% and 5.02%. Others are unlikely to sit on the fence for too long.

Customers deserve compensation

The Commonwealth Bank (ASX: CBA), along with the other majors is shrinking. It has taken a couple of decades for boards and management to realise they should not have been in wealth management, insurance or broking businesses. The hype over cross selling more products to customers has turned out to be a double cross of shareholders.