On the occasion of yesterday's cut in the Reserve Bank of Australia's official interest rates by one percentage points to 3.25 per cent - and taking the cuts to 4.0 percentage points in this cycle - lenders are perhaps under the greatest pressure yet to ensure that their borrowers enjoy the benefit of the looser monetary policy.
The Australian government, after being somewhat slow to link past support for banks to bank pricing practices, made the link clearer in media commentary yesterday (and made in the context of the spending initiatives and the revised budget forecasts that show the budget shifting toward a deficit equal to around two per cent of GDP).
Kevin Rudd, the prime minister, yesterday demanded that banks pass on the official rate cut in full.
"The banks have benefited from various things the government has done for them, not least of which was the two sets of guarantees covering deposits and wholesale funding," Rudd said yesterday.
"Therefore I'd say to the banks, given what the government has done to support the continued strength of our banks ... I would strongly urge the banks to take an open-hearted and compassionate approach to people and small business who find themselves in strife for which those people are not to blame."
Policy makers and banks are receiving plenty of advice onf the merit of more formally linking public backing for banks, and bank funding, to bank pricing practices.
Commentator and boutique mortgage funder Christopher Joye of Rismark, for example, argued in
The Australian that "the taxpayers' insurance and subsidies must come tied with explicit conditions, expectations, and prudential oversight".
Of pricing initiatives subject to more effective public relations and announced over the last half day or so ANZ, and National Australia Bank will all both cut home loan rates by one percentage point; Westpac will cut credit rates by one percentage point and NAB will do so by "up to" one percentage point, while Westpac will also cut small business lending rates.
Larger businesses tend to enjoy lower interest rates in line with money market rates, but, like small business, always subject to the risk margin specific to the business.
The Reserve Bank of Australia yersterday suggested in their short reasons for the change in monetary policy that business had enjoyed substantial interest rate relief, though based on published indicator lending rates this is not much more than half the level of the prior cuts to cash rates so far in this cycle.
The more subdued rate relief to business is bound to be a major driver of the higher than forecast profit for Commonwealth Bank, and presumably other major banks as well.