Claims by the banks that higher funding costs have prevented them from passing on recent interest rates cuts have been shot down by analysts who point to burgeoning margins on margins and corporate loans.

The major banks came under heavy criticism from the federal government last week after they passed on less than half the Reserve Bank of Australia’s (RBA) quarter of a percentage point cut in interest rates.

National Australia Bank (NAB) passed on no reduction at all. Like the other banks, NAB cited higher wholesale funding costs for its decision.
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Goldman Sachs JBWere predicts the federal government’s May budget will outlay another $9 billion of stimulus measures to prop up the economy on top of last week’s $42 billion package.

Chief economist Tim Toohey told ABC television the broker expected a total economic stimulus of up to four per cent of gross domestic product (GDP) over two years would be required to avoid a serious recession.

“So far, we’ve had one per cent in 2008, two per cent in 2009 and a bit in the numbers into 2010. But I think we’ll still have something in the order of about another 0.8 per cent worth of stimulus to come in the May budget,” he said.
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