RBA must 'go hard' on cuts to move banks

by Adam Smith27 Jan 2012

 Benign CPI numbers have the mortgage industry calling for deep rate cuts when the RBA next meets.

December quarter inflation figures, released Wednesday, show flat prices over the last three months, leaving annual underlying inflation within the RBA's target band at 2.6%. The result has prompted the HIA to call for another cut to the official cash rate.

"In light of continuing global uncertainty and some fragility in the non-mining sectors of our own economy, there should be no question as to a rate cut in February," HIA senior economist Andrew Harvey said.

Harvey called a rate cut "the only prudent course of action", and challenged banks to pass on any cuts in full; However, the banks have argued that higher offshore funding costs mean future rate cuts may not be entirely passed on to borrowers. Loan Market spokesperson Paul Smith has claimed a deeper RBA cut is needed to spur the banks into action, saying the RBA must "go hard" when it next meets.

"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 50bps," Smith said.

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