Banks should pass on rate cuts fully: ACCI

6 Feb 2012, 12:33 pm   -   Source: AAP
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Financial market expectations for the RBA to cut its cash rate to four per cent, from 4.25 per cent, on Tuesday are high. (AAP)

Financial market expectations for the RBA to cut its cash rate to four per cent, from 4.25 per cent, on Tuesday are high. (AAP)

Banks should pass on fully any rate cut by the central bank to boost the confidence of consumers and firms, a business lobby group says.

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The big banks should fully pass on any rate cut by the central bank to help improve consumer and corporate confidence, a business lobby group says.

The Australian Chamber of Commerce and Industry (ACCI) director of economics and industry policy Greg Evans said the Reserve Bank of Australia (RBA) should cut the 4.25 per cent cash interest rate when its board meets on Tuesday.

ACCI's business expectations survey for the December quarter, released on Monday, shows the outlook for the economy over the next 12 months has deteriorated to an index of 39.9 points, from 42.7 in the September quarter.

The latest reading is below the 50 point level that separates expectations of economic expansion from contraction.

Mr Evans said the quarterly result was the lowest since 2009.

"To address this issue of low levels of confidence, we need a rate adjustment, we need further reductions in interest rates," Mr Evans told reporters in Canberra.

The survey was "very weak", with most business indicators falling during the quarter.

Those sectors included sales, profitability, investment and employment, which were sitting at the lowest levels since the aftermath of the global financial crisis in early 2009.

"This is basically on the back of continued international uncertainty, but also very poor demand conditions in the mainstream economy where these businesses are operating," Mr Evans said.

He said the commercial banks had to pass on any official rate cut.

"They need to stop messing around borrowers of Australia and pass on these official rate reductions and pass them on in full," he said.

Financial market expectations for the RBA to cut its cash rate to four per cent, from 4.25 per cent, on Tuesday are high.

But there are fears the big banks won't pass on the reduction in full to their customers as they face increased funding costs in overseas capital raising markets.

"There may be cost of funds issues but overall it reflects that banks are more concerned about how they appear to analysts and how they appear to shareholders," Mr Evans said.

"They are less concerned, because of the lack of competitive pressures, how they appear to their customers and borrowers."

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