Friday, December 9, 2011

Banks finally pass on official rate cut; but RBA governor frustrated at rewriting of history of cash rate link to what commercial banks end up doing

The governor of the Reserve Bank Glenn Stevens is exasperated at how history has been rewritten on the link between official cash rate movements and what banks do with mortgage rates.

Mr Stevens was speaking in Sydney last night shortly before Westpac became the last of the big four banks to pass on Tuesday's 0.25 percent rate cut in full.

Mr Stevens says over history, banks have not moved in lockstep with the Reserve Bank despite perceptions in the media and from the Treasurer Wayne Swan that rate cuts or increases are always passed on.

Rather than expecting commercial banks to shadow the RBA, Mr Stevens said the central bank considered where it would like to see mortgage rates before deciding on a level to move.

And he said that without that strategy, the standard variable rate used by banks might be around one percentage point higher than they are today.

Listen to Glenn Stevens' comments and my analysis broadcast on this morning's edition of AM.

In a wide ranging speech, Mr Stevens also warned there could be a high price to be paid by western developed nations if China is called upon to bail out debt-laden Eurozone nations.

Listen to my report and the views of economist Stephen Koukoulas broadcast on The World Today

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