The ABA says the Reserve Bank has "again confirmed" that Australian households and borrowers are not paying more for their mortgages and business loans, even when banks don’t pass on RBA cash rate cuts in full.
Steven Münchenberg, chief executive of the ABA, says the RBA has made this point clear on a multiple occasions.
“Mortgage rates today are broadly where they would be, regardless of whether banks pass on rate cuts in full or not.”
Speaking last night to the Australian Business Economists Annual Conference, deputy governor of the RBA, Philip Lowe, pointed out that banks’ funding costs, and hence mortgage rates, have risen relative to the cash rate.
“As we have noted many times, the board of the RBA has taken account of this in its monthly policy decisions. As a result, the cash rate today is around 1½ percentage points lower than it otherwise would have been. The fact that the bank has offset the effect of higher funding costs on lending rates means that the normal level of the cash rate is lower than it otherwise would have been.”
Münchenberg says this makes it clear that, even if the banks had passed on all RBA rate cuts in full, mortgage rates would be the same as they are today because the cash rate would be 1.5 percentage points higher - at around 4.5%.
Lowe agreed, saying mortgage rates are where the ABA thinks they “broadly” should be.
Münchenberg calls the argument that Australian families or businesses are paying more because banks, credit unions and building societies have not passed on all rate cuts in full “fallacious.”
He says the RBA has confirmed that, recognising banks’ funding costs have risen over the past few years relative to the RBA’s cash rate, the RBA does not expect Australia’s banks, credit unions and building societies to always pass on RBA rate cuts in full.
“There is a strong expectation in the community, reinforced by politicians, that banks should always follow the RBA, despite the RBA repeatedly stating that it does not expect banks to do this.”