The Flaw in Westpac's Banana Argument | BTalk Australia

Last Updated Jan 3, 2010 7:28 PM EST


(Episode 401; 4 minutes 49) Westpac made the mistake recently of releasing a condescending video explaining why they had to raise their interest rates more than the official increase in rates from the Reserve Bank of Australia.

The argument goes that if there was a shortage of bananas we'd expect to pay more for a banana smoothie. So if there's a shortage of cash we should expect to pay more to borrow it, so there's a hike in interest rates.

There's a fundamental flaw in this argument, which we examine in today's BTalk. It calls on the most basic element of economics and pricing. To help illustrate the point we draw on an earlier interview with Ron Wood of Pricing Insight.

To hear more of the interview with Ron visit Success at What Price? | BTalk Australia
Here's the video in question on YouTube.
Shouldn't Westpac have known better? Add your views in the Talkback section at the end of this post.