The Reserve bank of Australia (RBA) saw no need to cut interest rates in July given further signs of stabilisation in the global and domestic economies.

On July 7, the central bank left the overnight cash rate steady at a 49-year low of three per cent for the third consecutive month following a board meeting.

The minutes of that meeting, released on Tuesday, show board members had focused their discussion on data showing further signs of a bottoming in the global economic downturn, particularly in China and the US.

“Output in the major economies was likely to have contracted by a significantly smaller amount in the June quarter than in the previous two quarters,” the minutes said.
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The days of historically low interest rates could soon be over as a rebound in the economy restrains the Reserve Bank’s use of the monetary scalpel.

Minutes from the central bank’s July meeting, due out on Tuesday, are expected to talk up the Australian economy’s resilience in the face of global financial instability.

With interest rates at a 49-year low, and middle-income earners benefiting from recent federal government stimulus programs, inflation may return to the headlines during the coming year.

An Access Economics business outlook report says interest rates will be raised again in 2010 and 2011.
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Homeowners have been told not to expect too many more interest rate cuts as Australia continues to recover from an economic flu.

The good news for borrowers is the Reserve Bank of Australia (RBA) may cut rates one more time, but after that they are more likely to go up than down, the experts say.

Inflationary pressures, which usually govern the direction of interest rates, are showing further signs of easing.

Producer prices, or the costs of making goods and services, declined by 0.8 per cent in the June quarter.

This was the biggest quarterly fall since the data series began in 1998.
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Rental accommodation in outer and inner Sydney suburbs continues to plummet, prompting renewed calls for banks to pass on the latest cut in official interest rates.

The Real Estate Institute of NSW says the percentage of available properties for rent in suburbs more than 25 kilometres from Sydney’s CBD fell from 1.1 per cent in February to 0.9 per cent in March - the lowest result recorded since June 2008.

Overall Sydney rental vacancies fell by 0.1 per cent to 1.2 per cent, the lowest recorded since October last year.
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Australia’s central bank governor Glenn Stevens has called for perspective on banks passing on interest rate cuts.

Banks have come under fire for failing to pass on the latest 25 basis point interest rate cut by the Reserve Bank of Australia (RBA) by the full amount.

“I won’t bite too much at whether it is frustrating observing the pass-through issue but I think we should keep some perspective,” Mr Stevens said.
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The nation’s banks remain under fire for failing to pass on in full the cut in official interest rates handed down earlier this month.

The Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points at its April board meeting, with three of the major banks passing on a mere 10 basis points of the move.

The National Australia Bank passed on nothing.

A survey by lobby group Essential Research found that 86 per cent of people believe banks should always pass on an official rate cuts in full.
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The federal government has told a meeting of major bankers that they must support small business during the economic slowdown.

Small Business Minister Craig Emerson said credit was the “lifeblood” of small business, and the banks had a responsibility to provide adequate credit flows to the small business sector.

“I told the banks that they have a vital part to play in keeping small business trading,” Dr Emerson said in a statement on Thursday.
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National Australia Bank (NAB) Ltd has bowed to consumer pressure, saying it “got it wrong” last week when it cut interest rates on a youth savings account by the full amount of the official drop in rates.

NAB said it had reversed its decision and has raised the rates on its NAB smart junior saver account by a quarter of a percentage point, after reducing it by that amount last week after the Reserve Bank of Australia cut official rates by a similar level.

NAB would now pay customers with a NAB smart junior saver account 2.35 per cent, and pay customers with a NAB smart reward saver account 2.61 per cent, the bank said in a statement.
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The Australian Bankers’ Association (ABA) has defended decisions by lenders not to pass on all of last week’s cut in official interest rates.

Although banks are making profits on home loans, ABA chief executive David Bell said banks’ margins had continued to fall since 1996.

“That has been a continued and long-term trend. Yes, they kick up, they kick down, but in overall terms they have declined from just under four per cent to just over two per cent,” he told ABC Radio.
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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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Bank of Queensland Ltd (BoQ) has cut its standard variable rate on mortgages by 10 basis points, in line with other banks.

BoQ said its new standard variable rate on home loans would drop to 5.89 per cent from April 24.

But the bank was silent on interest rates applying to business loans, credit cards and other loan products.

BoQ’s move follows the Reserve Bank of Australia’s 25 basis point cash rate cut last Tuesday.
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By Jill Fraser for Lending Central

Not only does Aussie Home Loans’ executive chairman, John Symond believe that banks are justified in passing on less than half (or in NAB’s case zilch) of the Reserve Bank’s official rate cut, he challenges the RBA’s decision to reduce the cash rate to a five-decade low of 3%.

Symond spoke to Lending Central earlier today.

LC: What is your response to the banks passing on such a paltry percentage of the RBA rate cut? Can it be rationalised?

JS: The answer is yes..
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Specialist lender, RAMS Home Loans today announced it will once again move quickly to reduce its variable home loan rates by 0.1% p.a. passing on further savings to new and existing customers effective from Friday, 17 April 2009.

This rate reduction follows the latest decrease to the Reserve Bank of Australia’s official cash rate, taking the RAMS Standard Variable Home Loan rate to 5.59% p.a. and the RAMS Basic Home Loan to only 4.99% p.a. - some of the most competitive rates in the market.

RAMS Chief Executive, Melos Sulicich said RAMS has taken a long term view of its pricing decisions to continue to offer a valuable alternative in the lending market and deliver competitive home loans for everyday Australians.
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St George Bank has cut its standard variable home loan interest rates by 10 basis points.

The bank, which is owned by Westpac, said its standard rate will fall to 5.79 per cent from April 17.

St George will also cut its business and commercial lending rates by 25 basis points.

The mortgage rate reduction equates to a saving of approximately $16 per month in repayments on an average size loan of $250,000 over a 30-year loan term.
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Four large lenders have matched the Commonwealth Bank in passing on less than half Tuesday’s official cut to interest rates.

The move comes after the banking industry was criticised heavily by the federal government for not passing on in full the interest rate cut by the Reserve Bank of Australia (RBA).

ANZ Banking Group, Westpac, St George Bank and Suncorp Metway Ltd announced they would shave 10 basis points from their standard mortgage rates after the RBA cut the cash interest rate by 25 basis points - or a quarter of a percentage point- to a 49-year low of three per cent.
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