Message To Banks: Pass On Full Benefits

Illawarra Mercury

Wednesday December 3, 2008

By ALEX ARNOLD

YESTERDAY'S 100 basis point cut to official interest rates should be good news for Illawarra businesses.

But, according to Illawarra Business Chamber chief executive Mark Grimson, banks are not passing on the full benefits of the cuts to business.

"On the whole it is welcome news," Mr Grimson said.

"Clearly households having more to spend will flow on to retail spending figures over Christmas ... but the real test will be how much of the cuts are passed on to business.

"The issue for us is a widening gap between the official cash rate and what businesses are paying on overdrafts.

"The banks are passing the cuts on to households but not to business."

Mr Grimson said between September and November the cash rate target fell by 1.75 percentage points cent, yet at the business overdraft rates fell by just 1.15 percentage points.

"It is simply not acceptable for the gap between the RBA and business and home loans to continue widening in this way," he said.

Chair of the Illawarra Property Council Geoff Jones said the falling rates made property a more attractive form of investment, especially in light of the stock market volatility.

Mr Jones said the likelihood of interest rates falling even further gave people confidence to commit to a housing purchase.

"Everyone wants to buy with prices going forward not backwards," he said.

Mr Jones said residential agencies had reported an increase in activity during October as interest rates began to fall and early indications were that the trend continued into November with the support of government incentives.

Albion Park Chamber of Commerce president Jim McCallum said the rate cut was good news.

"How could anyone not like an interest rate fall?" he said.

"There has definitely been a murmur of more confidence coming back."

© 2008 Illawarra Mercury

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