malcolm edey : opening statement to the senate economics references committee inquiry into matters relating to credit card interest rates opening statement by mr malcolm edey, assistant governor ( financial system ) of the reserve bank of australia, to the senate economics references committee inquiry into matters relating to credit card interest rates, sydney, 27 august 2015. * * * thank you for the opportunity to appear today. i know the committee is interested in a number of different aspects of credit card pricing and regulation, and we ’ ve tried to address those aspects that come within our field of expertise and responsibility in our submission. as we explain in the submission, credit cards have both a payment and a credit function. the regulatory powers and mandate of the reserve bank payments system board ( the board ) relate to the payment function. the board has a mandate to use its powers to promote efficiency and competition in payment systems, consistent with overall stability of the financial system. to that end, the board has for a number of years regulated card payment systems by setting standards in relation to such matters as interchange fees, surcharging and access. as you know, the board is currently undertaking a comprehensive review of those aspects of card payments regulation. i ’ ll be happy to answer any questions you might have today about how that review is proceeding. i know the committee is also very interested in the credit function, and particularly the interest rates on credit cards. that is not something that we regulate, but we have set out in our submission an overview of some of the key facts. if i may, i ’ ll just make a few high - level observations about that before we go to questions. credit card products vary a lot in the interest rates that they charge. some of those rates are very high. they ’ re higher than i think can be easily explained. interest rates of the order of 20 per cent on credit cards are not uncommon. the average rate for borrowers who incur interest on credit cards is currently about 17 per cent. after deducting banks ’ cost of funds and the cost of credit losses, that would equate to an interest rate margin of more than 10 percentage points. my advice if you ’ re in that situation is to shop around. despite the prevalence of high - rate cards, this is a market where there is some significant competition. there are a lot of card products that offer lower rates and special deals for balance transfers. in many cases, cardholders should be able to lower their interest rates by taking

countries that have not had an impaired banking system, those policy reactions have had a considerable effect. they were, amplified by the spill - overs that occurred because the stimulus took place in all countries more or less at the same time. yet the upswing is uneven. it has been very strong in asia and latin america, moderate so far in the us and weak overall in europe ( which itself has quite a mix of growth performances across countries ). of importance to australia is that the strongest growth in demand has been nearby. apart from japan most of the economies in the east asian region have experienced a “ v - shaped recovery ”. while some of this recovery reflects the process of re - stocking of durable goods around the world, it also reflects strong demand within the region. commodity prices generally rose somewhat after the very large falls in late 2008. but of significance for australia, prices for those resources which serve as the raw materials for steel production in particular have been exceptionally strong. prices for iron ore and coal rebounded very sharply during 2009 and early 2010. contract prices for iron ore in the current period are double those of a year ago ; until recently spot prices were well above even that level though they have retreated somewhat of late. in short, global growth, while uneven, has been recovering in the places and in the form that was most likely to deliver a boost to australia ’ s terms of trade. it looks like our terms of trade this year will again reach the 50 - year high seen two years ago. it could, of course, be that some of this recent increase in prices turns out not to be permanent. some economies in asia will probably, one way or another, experience a moderation in the pace of expansion over the coming year, because the pace of growth over the past year can ’ t be sustained without problems arising. the chinese authorities have been seeking for some months to take the steam out of certain sectors of their economy, particularly housing prices. they may be having some success. for this and other reasons, we and other forecasters are assuming that this peak in the terms of trade won ’ t be sustained. but to reach that 50 - year high twice in three years would appear to signal that something pretty important has been going on – something more than just temporary cyclical events. it is increasingly apparent that the asian region is becoming large enough that it has a tangible independent impact on the global economy and on australia in particular. china and nonjapan east asia together accounted