A former member of the board of the Reserve Bank Australia (RBA) believes borrowers should have reaped the full benefit of this week’s cash rate cut.
After the RBA dropped the official cash rate to 0.25%
this week, lenders have passed on varying proportions of that cut to borrowers
, but John Edwards, who was on the RBA’s board until last week, believes the entire cut should’ve been passed on.
Speaking to the ABC’s 7.30 program earlier this week
, Edwards said the RBA board would be disappointed in the stance taken by lenders after the cut.
“I think the banks should have passed that on. I think it'd be helpful for the Australian economy and I rather think that's what the RBA would have intended,” Edwards told 7.30
I think they would be [disappointed]. When you make a decision to cut by 25 basis points, you know, your intention is to affect household demand and lending and that affect is gonna be muffled,” Edwards said.
Edwards’ comments are supported by John Flavell, chief executive of Mortgage Choice, who said it was “deeply disappointing” to see that Australian lenders, particularly the major banks, had not elected to pass on the full cut.
“At a time when the economy could do with the lift that a cut to the cash rate would provide, it was deeply disappointing to hear some of the nation’s largest and most profitable lending institutions announce that only 10 or 13 of the 25 basis point reduction would be passed on to their mortgage customers,” Flavell said.
“It would be very easy to let this partial rate cut pass under a veil of rhetoric around the cost of wholesale funds, and requirements to hold increased amounts of capital against mortgages,” he said.
“The reality is however, if all lending institutions chose an equally profit focused approach and held back this proportion of the 25 basis point cut, then this equates to something like $2 billion dollars taken out of the pockets of Australian mortgage holders and placed onto the bottom line of institutions that are already generating tens of billions of dollars in profits every year.”
While falling short of backing the Labor Party’s call for a Royal Commission into the banking sector, Edwards told 7.30
there should be some form of investigation into their behaviour.
“I think some kind of inquiry would be helpful. We've - we of course had the Murray inquiry, which I think was useful, but I think we do need to do a lot more work on the quality of financial advice being offered by banks, particularly because they've become such a huge presence in funds management and because the population is ageing,” he told the ABC.
“You know, their authority in that area is becoming vastly bigger than it was even a decade ago and I think that's where we need to get a better idea of what the culture is and how good the performance and practice is.”
Can you afford to buy in this suburb? Find out how much you can borrow
Top Suburbs :
Get help with your investment property
Do you need help finding the right loan for your investment?
When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.
Just fill in a few details below and we'll then arrange for a local Aussie Mortgage Broker to contact you and work out what features or types of loans are right for your needs. We'll even help with the paperwork. Plus and appointment is free.
We value your privacy and treat all your information seriously - you can check out