Banks did force RBA's hand on rates

by BN12 Jul 2012

The Reserve Bank of Australia has admitted that major bank reluctance to pass on cash rate cuts has forced it to cut further than it otherwise would have.

Banks have faced a public backlash as a result of their collective decision not to pass on the full extent of the RBA's cash rate adjustments, as a result of the higher post-GFC cost of funds.

In an effort to keep the economy growing on target, the Reserve has cut rates by 125 basis points since November, a more dramatic decerease than would otherwise have been necessary.

Reserve deputy governor Philip Lowe told the Australian Financial Review the rate is approximately 1.5% lower than it would have been if the banks had passed on the cuts.