The Reserve Bank has backed claims by major commercial lenders that higher funding costs are forcing them to pass on new costs to borrowers through independent interest rate increases.
In the minutes from its board meeting on February 7, the RBA confirmed that funding costs were "significantly higher" than in the middle of 2011 because of a dislocation of bank debt markets.
"The cost of swapping funds raised in offshore markets into Australian dollars has increased in recent months," the RBA noted.
Listen to my analysis broadcast on The World Today shortly after the RBA minutes were released.
The minutes say that at the same time, banks continued to compete for deposits, meaning reductions in deposit rates had not fully matched the cumulative 0.5 per cent cash rate cuts in November and December.
"Collectively, these developments had increased banks' overall cost of funding relative to the cash rate and had narrowed the difference between banks' lending rates and funding costs," the board noted.
The Reserve Bank surprised most economists a fortnight ago by leaving the cash rate on hold at 4.25 per cent.
According to the minutes, the RBA board judged the current setting to be "appropriate" given the overall economic outlook.
Major banks responded with independent increases in their standard variable rates, fuelling anger from Federal Treasurer Wayne Swan, borrowers and consumer groups.
The RBA's defence of the higher funding cost argument counters claims by Societe Generale's head of strategy in Asia, Christian Carrillo, that banks were wrong to claim funding costs on global markets were higher.
"What we have seen over the last six months is that overall funding costs for Australian banks have absolutely come down," Mr Carrillo told AM.
"Research suggests that effectively pretty much every source of funding that they use - in terms of domestic deposits, short-term funding onshore, long-term funding onshore - has actually gone down. "