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15783
Wed, 08/13/2008 - 18:27
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http://m.oananews.org//node/15783
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RBA believes retail banks can cut rates
The Reserve Bank of Australia (RBA) has joined in the growing row over whether retail banks should cut mortgage rates if the central bank does, saying they should. Speculation remains rife that the RBA will cut its key cash rate next month, despite figures on Wednesday showing stronger than expected wage growth and a large rebound
in consumer sentiment.
The banks have not guaranteed to match any official rate cut.
But RBA assistant governor Philip Lowe said there was no obvious reason for the banks not to follow the RBA's lead.
Mr Lowe told the annual Retail Financial Services Forum in Sydney that the so-called 90-day bank bill rate - used as an indicator of banks' cost of funds - had fallen sharply in recent weeks. "Over the last two or three weeks, the 90-day bank bill rate is down around half a per cent, so that significantly reduces the banks' marginal cost of funding," Mr Lowe said. "I think that means that there is no obvious reason that the banks could not pass through any change in the cash rate."
The country's largest home lender - the Commonwealth Bank of Australia (CBA) - on Wednesday reported a seven per cent jump in profits to $4.48 billion, drawing renewed pressure to cut rates from the federal government and unions. But CBA boss Ralph Norris appeared in no rush to comply with an expected RBA rate cut. "Over time, we would expect that the margin on home loans will revert to a level
which was consistent to where it was say 12, 13 months ago," Mr Norris said.
Prime Minister Kevin Rudd said it was the "right and reasonable thing" for the banks to follow any move by the central bank. "If you're a bank generating significant profits - and commercial banks have been generating significant profits in recent years - I would say that those banks owe it to working families ... that when official interest rates move that those moves should be passed on to consumers," Mr Rudd told reporters in Perth.
ACTU president Sharan Burrow said the banks had four times lifted their lending rates independently of the RBA this year, adding an extra $100 a fortnight to the typical mortgage repayment. "Additional interest rate rises on top of the reserve bank have been proven to be
more about profit gouging than about a serious downturn in the anking sector," Ms Burrow said in a statement.
Financial markets continue to fully price in a rate cut next month, despite Wednesday's positive data. The RBA's preferred measure of wages growth - the wage price index - rose by a seasonally-adjusted 1.2 per cent in the three months to June, Australian Bureau of Statistics data shows. This is the fastest pace of growth since the series started in 1997 and compared with a 0.9 per cent increase in the March quarter. This lifted the annual rate to 4.2 per cent from 4.1 per cent previously, but was still below the RBA's perceived line in the sand at 4.5 per cent. At the same time, consumer sentiment has had a major boost from near recessionary levels, aided by an eight per cent drop in petrol prices in the past month and rate cut speculation.
The Westpac-Melbourne Institute consumer sentiment index rose 9.1 per cent in August, the third biggest jump in five years. "If the RBA fails to deliver on rate cut expectations, confidence almost certainly
will collapse," JP Morgan chief economist Stephen Walters warned.
in consumer sentiment.
The banks have not guaranteed to match any official rate cut.
But RBA assistant governor Philip Lowe said there was no obvious reason for the banks not to follow the RBA's lead.
Mr Lowe told the annual Retail Financial Services Forum in Sydney that the so-called 90-day bank bill rate - used as an indicator of banks' cost of funds - had fallen sharply in recent weeks. "Over the last two or three weeks, the 90-day bank bill rate is down around half a per cent, so that significantly reduces the banks' marginal cost of funding," Mr Lowe said. "I think that means that there is no obvious reason that the banks could not pass through any change in the cash rate."
The country's largest home lender - the Commonwealth Bank of Australia (CBA) - on Wednesday reported a seven per cent jump in profits to $4.48 billion, drawing renewed pressure to cut rates from the federal government and unions. But CBA boss Ralph Norris appeared in no rush to comply with an expected RBA rate cut. "Over time, we would expect that the margin on home loans will revert to a level
which was consistent to where it was say 12, 13 months ago," Mr Norris said.
Prime Minister Kevin Rudd said it was the "right and reasonable thing" for the banks to follow any move by the central bank. "If you're a bank generating significant profits - and commercial banks have been generating significant profits in recent years - I would say that those banks owe it to working families ... that when official interest rates move that those moves should be passed on to consumers," Mr Rudd told reporters in Perth.
ACTU president Sharan Burrow said the banks had four times lifted their lending rates independently of the RBA this year, adding an extra $100 a fortnight to the typical mortgage repayment. "Additional interest rate rises on top of the reserve bank have been proven to be
more about profit gouging than about a serious downturn in the anking sector," Ms Burrow said in a statement.
Financial markets continue to fully price in a rate cut next month, despite Wednesday's positive data. The RBA's preferred measure of wages growth - the wage price index - rose by a seasonally-adjusted 1.2 per cent in the three months to June, Australian Bureau of Statistics data shows. This is the fastest pace of growth since the series started in 1997 and compared with a 0.9 per cent increase in the March quarter. This lifted the annual rate to 4.2 per cent from 4.1 per cent previously, but was still below the RBA's perceived line in the sand at 4.5 per cent. At the same time, consumer sentiment has had a major boost from near recessionary levels, aided by an eight per cent drop in petrol prices in the past month and rate cut speculation.
The Westpac-Melbourne Institute consumer sentiment index rose 9.1 per cent in August, the third biggest jump in five years. "If the RBA fails to deliver on rate cut expectations, confidence almost certainly
will collapse," JP Morgan chief economist Stephen Walters warned.
