Rate cuts called for by RBA

"Tighter financial conditions [are] not warranted" while "less restrictive conditions could soon be called for, otherwise the risk of a deeper and more persistent slowing in the economy would increase" are the key messages in the minutes of this month's meeting of the board of the Reserve Bank of Australia.

The RBA board met two weeks ago and published the minutes yesterday.

Officers of the RBA have reinforced the message of these minutes in pretty frank commentary at an industry conference and a parliamentary hearing over the last week.

The context of the tighter financial conditions is the "ongoing pressure on lenders' cost of funds in the market" according to the board minutes.

The dilemma these observations raise for the RBA in setting monetary policy and for banks in pricing home loans is whether or not much, if any, of a 25 basis point cut in Australia's target cash rate (to 7.0 per cent) might make a difference to actual rates paid by customers. Bank management have made it clear in public commentary in recent weeks that it is their overall cost of funds that matters.

In New Zealand, floating interest rates on business and consumer loans don't seem to have fallen much, if at all, in the four weeks since the Reserve Bank of New Zealand cut rates by 25 basis points.