Swan Pressures Banks To Pass On Expected Rate Cut

Sydney Morning Herald

Saturday November 1, 2008

Phillip Coorey Chief Political Correspondent

THE federal Treasurer, Wayne Swan, has toughened his stance against the banks, saying they must explain any decision not to pass on in full an expected interest rate cut next week.

Mr Swan would not comment on what he thought the Reserve Bank would do when it meets on Tuesday to discuss rates.

But markets continued to forecast a 100 per cent chance that rates would be cut by half a percentage point as the bank continues to try and stimulate the economy and ward off a recession.

"There's still a volatile funding environment out there but I certainly want to see the banks pass on the maximum amount possible," Mr Swan told the Herald.

"While it's volatile, if they are not intending to pass any amount on in full, I would like to see a cogent explanation as to why that is the case."

A month ago the Reserve Bank cut rates by one percentage point, the biggest cut in 16 years. Mr Swan defended the banks' initial decision to pass on only 0.80 percentage points because they faced high borrowing costs at the time.

Later, all the big banks passed on the remainder, saying borrowing costs had eased in part due to the guarantees the Government had given on deposits and borrowings.

But short-term borrowing costs have risen again during the past two days, so Mr Swan was reluctant to demand categorically any rate cut be passed on in full, saying it would ultimately depend on conditions next week.

If a portion of any cut was withheld, he expected it to be passed on when conditions normalised.

The Opposition Leader, Malcolm Turnbull, criticised Mr Swan for cutting the banks some slack last time and said yesterday that the Treasurer was now coming around to his position.

"In the current climate the banks are more than able to pass it on, and I'd expect them to do so," Mr Turnbull said. The banks were enjoying the government guarantees on deposits and borrowings and they still enjoyed large profits, he said.

"[The Government's] provided unprecedented support for the banks, and given the fact they are all very strongly profitable, I honestly cannot see why they would not be able to pass on any rate cuts in full."

Since the last Reserve Bank meeting, Australia's five big banks have announced combined pre-tax profits of $21 billion.

© 2008 Sydney Morning Herald

Back to News Index | Back to Home