(13 July 2012 – Australia) Higher funding costs forced the Reserve Bank of Australia (RBA) to cut its benchmark interest rate by an extra 1.5 percentage points, to make sure borrowers did not wear all the pain caused by the rise in global credit costs, according to deputy governor Philip Lowe.He also warned that bank shareholders may need to share in the pain of higher credit costs by accepting lower returns, rather than expecting borrowers to shoulder all of the burden.
In a speech on the lingering effects of higher credit costs, Dr Lowe said yesterday the higher costs were likely to dampen conditions in banking.
While he said it was difficult to be precise, ”the cash rate today is in the order of 1.5 percentage points lower than it would have been in the absence of these developments”.
It is the first time the central bank has revealed the extent to which it has tried to shield borrowers from the global rise in credit costs, which banks have sought to pass on to customers.
Australian Bankers Association (ABA) chief executive Steven Munchenberg welcomed Dr Lowe’s comments on interest rates, saying they showed banks’ decisions on passing on interest rate moves had little effect on the rates consumers paid.