PM warns banks to pass on full rate cut

6 Feb 2012, 6:31 pm   -   Source: AAP
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Prime Minister Julia Gillard has warned the big banks their customers won't be happy if they don't pass on any interest rate cuts in full.

Prime Minister Julia Gillard is anticipating a "year-long debate" on the economy, starting on the first parliamentary sitting day of 2012, as the nation looks forward to a possible interest rate cut.

The major banks look set to take centre stage in the economic discussion, especially if the Reserve Bank of Australia (RBA) goes ahead with a widely expected official cash rate reduction at its first board meeting of the year on Tuesday.

A cut in the RBA cash rate to four per cent, from 4.25 per cent, should result in a reduction of around $50 a month in repayments for the average $300,000 home loan.

But some of the big banks have already warned it might be too hard to pass the cut on in full to their customers because they face increased funding costs in overseas capital markets.

"People who are customers are entitled to be very angry if they don't see interest rate reductions passed on," Ms Gillard told reporters in Canberra on Monday.

Small business owners certainly hope another rate cut is on the cards, following on from the reductions in November and December, as they face the financial ramifications of soft trading conditions.

"It makes good economic sense to ensure this sector, which accounts for 96 per cent of businesses in Australia, is offered rate relief," the head of business software provider MYOB Tim Reed said in a statement.

Small and medium-sized business are facing a domestic exchange rate that won't back down, higher fuel prices, financially cautious consumers, intensified competition from a global online sales environment and increasing red tape.

A new survey by the Australian Chamber of Commerce and Industry (ACCI) released on Monday also showed that business expectations are at their lowest since 2009.

Most business indicators fell during the December quarter, including those for sales, profitability, investment and employment.

"To address this issue of low levels of confidence, we need a rate adjustment, we need further reductions in interest rates," ACCI director of economics and industry policy Greg Evans told reporters in Canberra.

He said the big four commercial banks, which reported combined full year profits of about $25 billion in fiscal 2011, should 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.

Other data showed retail spending unexpectedly fell 0.1 per cent in December, to a seasonally adjusted $20.9 billion, while sales grew by a slim 0.4 per cent over the December quarter.

"Flat trade figures also show consumers weren't really convinced by interest rate cuts over November and December, which strengthens the case for a further cut from the RBA tomorrow," Australian Retailers Association executive director Russell Zimmerman said.

The latest inflation reading from the TD Securities-Melbourne Institute is unlikely to stand in the way of a rate cut, with a rise of just 0.2 per cent in January for an annual rate of 2.2 per cent, at the bottom end of the RBA's two to three per cent target band.

Still, other data showed demand for workers jumped by the biggest margin in nearly two years in January.

ANZ Banking Group's monthly job advertisement survey shows ads on the internet and in major metropolitan newspapers rose six per cent in January, compared to the previous month.

"Today's job ads data is a reminder that we can't lose sight of our strong fundamentals and underlying resilience of our economy," Treasurer Wayne Swan said in a briefing note on Monday.

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