Editorial Banks Strong Enough To Pass On Rates Cut

Illawarra Mercury

Tuesday October 7, 2008

THE Reserve Bank is widely tipped to cut interest rates today by as much as half a percentage point, but homeowners shouldn't hold their breath waiting for banks to pass it on.

On one hand we have the RBA prepared to make a 50 basis-point cut and one would expect the keeper of the country's purse strings to know if such a move is feasible.

However, on the other hand, banks are warning that high borrowing costs would make it hard for them to match an RBA rate cut.

The Federal Government has "encouraged" the banks to match any interest rate cut, but stopped short of ordering lenders to do so. The Government is wary of the world crisis and wants to ensure our banks remain strong.

A glance at recent profits indicates the country's banks are holding up pretty well. What it boils down to is the banks' focus on making profits, often at the expense of home buyers.

However, the RBA has to have a foot in each camp to fulfil its three main responsibilities - the stability of the currency, the maintenance of full employment and the economic prosperity and welfare of the people of Australia.

The Reserve Bank would not recommend a rate cut if it didn't think the Australian banking sector could afford to pass it on while remaining strong and competitive.

© 2008 Illawarra Mercury

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