The Housing Industry Association has called on Australia’s banks to buck the trend and lower their standard variable rates out of cycle with the Reserve Bank.
Yesterday, the Reserve Bank of Australia said it was prudent to leave the official cash rate on hold at 3 per cent.
But despite the board’s decision to leave rates untouched, HIA senior economist Shane Garrett believes there is room for the banks to move on rates.
“The decision by the RBA to hold interest rates today places even more pressure on banks to take the lead on this front,” Mr Garrett said.
“Despite the 175 point reduction in the RBA rate since late 2011, the discounted variable mortgage rate has only come down by 140 basis points and even less of a reduction in lending rates for small businesses.
“With the RBA’s own research indicating a fall in the banks’ wholesale lending costs over the past few months, the time for lenders to pass on the full RBA cuts is long overdue.”
Mr Garrett said while the RBA based its decision on what it views as a satisfactory balance between recent economic growth and inflation data, core sectors of the economy including residential construction and small businesses are experiencing their most challenging conditions.
"The strength of the mining and natural resources sector means that the weakness of certain other sectors has been masked in aggregate economic data releases,” Mr Garrett said.
“The cautious approach of the RBA to further interest rate reductions means that banks need to act quickly to support activity in the traditional economic sectors.”