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Calls for rate cut intensify
Released 30 January 2012

The Reserve Bank of Australia (RBA) will need to reduce the official interest rate by at least another half a percentage point next month to pressure major banks into passing on reductions to customers, according to mortgage broker Loan Market.     

Loan Market Corporate spokesman Paul Smith said the big banks had all indicated they might not be able to match a 25 basis points cut to the cash rate if the RBA Board made that decision at its next meeting on 7 February 2012.

“The RBA will have to go hard with at least a 50 basis points reduction at their next meeting and the latest official figures showing a lower than expected 3.1 per cent annual inflation rate and prospects of rising unemployment support the need for a cut,” Smith said.

He said the big four banks have all stated that rising funding costs as a result of the European debt crisis will impact on their bottom line and make a rate reduction difficult.

“But the RBA can apply more pressure on the banks and ensure borrowers are not left in the lurch by making a bigger than expected cut in the cash rate of at least 50 basis points.”

If the RBA next month lowers its rate by half a percentage point it will be the largest single reduction since February 2009, when the central bank applied a one per cent cut to lower the official rate to 3.25 per cent.

Smith said the RBA taking the cash rate to its present level of 4.25 per cent with back-to-back 25 basis point reductions in November and December of last year had boosted consumer confidence.

“But the deepening debt crisis in Europe means the RBA will have to act again and for consumers to cash in they will need to make a meaningful cut to the cash rate,” he said.