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Rudd puts banks on notice for further cuts

By Online parliamentary correspondent Emma Rodgers

Posted October 8, 2008 09:41:00
Updated October 8, 2008 10:59:00

Kevin Rudd ... 'we expect the banks to pass on the rest' (Getty Images: Sergio Dionisio, file photo)

Prime Minister Kevin Rudd has defended the banks' decision not to pass on all of yesterday's rate cut to consumers but says they must do so when economic conditions stabilise.

In a surprise move yesterday the Reserve Bank cut the official cash rate by 100 basis points, to 6 per cent.

Following the announcement, the Commonwealth, Westpac Bank, NAB and St George Bank lowered their interest rates by 80 basis points.

While Mr Rudd supports the banks' actions, he has also urged them to pass on further cuts if conditions improve.

"It's been important through this decisive action from the Reserve Bank for there to be maximum assistance to households and that we've seen that through the decision by the commercial banks," he told Ali Moore on ABC Local Radio.

"As financial markets stabilise we expect the banks also to pass through the rest over time."

However, Mr Rudd conceded that his defence of the banks' position not to pass on the full cut to borrowers may be unpopular.

"My job, and sometimes it's going to be very unpopular, is to argue in defence of the stability of the Australian banking system," he said.

"That means making sure we get these decisions right."

Mr Rudd said despite worsening global conditions there are strong grounds for Australia to remain optimistic about its economy but there must be a balance between a strong banking system and relief for borrowers.

Growth figures

Treasurer Wayne Swan says while there is no doubt Australia's economic growth will slow, the country's long-term outlook is still good.

But he has not confirmed whether growth figures will be revised down.

"We will be publishing later in the year our mid-year economic review - that will be the appropriate time to discuss our forecasts for the future," he told AM.

"But as we've said, this will impact upon growth and certainly that's one of the reasons why we have this substantial easing of monetary policy by the Reserve Bank."

Mr Swan is attending meetings in the US with the International Monetary Fund (IMF) and World Bank over the weekend.

He says there must be diligent international cooperation to resolve global financial problems.

"The Prime Minister has made it very clear that he is determined to work internationally, through bodies like the IMF and also the G20 to get some real progress in this area," he said.

Opposition Leader Malcolm Turnbull has continued his attack on the Government for not pressuring banks to pass on a full cut, accusing it of abandoning homeowners.

"If I had run up the white flag and abandoned the interests of borrowers, small business and homebuyers in the same way that Wayne Swan and Kevin Rudd did, do you think that the banks would have passed on four fifths of those rates cuts?" he told Radio National.

"I'm not taking credit for any particular amount of it ... but the reality is when you call on people to be accountable and to be transparent and justify what they're doing they have to sit back and think, 'OK how much is this really costing us, how much can we really bear?' and that causes them to reflect and perhaps be more precise."

Mr Swan has rejected the suggestions Mr Turnbull's position pressured banks to pass on a bigger cut.

"I know Mr Turnbull thinks of the whole world revolves around his ego, but there are some events in the world which are much bigger," he said.

"The fact is the Reserve Bank is responding to international events and its responding by providing that easing of monetary policy for Australian families."

Tags: economic-trends, banking, australia

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Comments (79)

Comments for this story are closed. No new comments can be added. If you would like to have your say on this issue, you can do so via the Emails section of our Opinion pages.

Simon:

08 Oct 2008 10:07:58am

I can't wait for the banks to release their annual performance figures...

Agree (0) Alert moderator
Bullfrog:

08 Oct 2008 10:08:02am

I'm pleasantly surprised that the banks transferred so much of the cut on. Given that up to 66% of the funds used to lend to us were sourced from non-depositor sources, the cost of that proportion of the funds has not gone down. Only the cost of the money depositors put in has gone down (eg the banks can now pay less interest to the depositor, thus charge less interest to the borrower).

Agree (0) Alert moderator
greenspan:

08 Oct 2008 10:08:03am

Banks are happy to make billions of dollars of profit, they should pass on the full rate cut and swallow the bitter pill and take less profits.

Time to turn on the shareholders of these banks - they are just as greedy as the banks.

Agree (0) Alert moderator
Tank:

08 Oct 2008 10:08:17am

I'm sure the banks are very scared. Remember, this is the same Kevin Rudd who ``couldn't go three rounds with Winnie the Pooh' as somebody on his own side of politics once famously observed.

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pmoes:

08 Oct 2008 10:08:45am

The banks should be forced to pass on the full rate of the cut. It is obscene that they can announce billions of dollars in profits and not pass on the full cut.
This is not bank bashing. By allowing this to happen it is merely supporting the system that caused the financial crisis in the first place.
Creating massive profits from everyone to provide benefits to a minority of shareholders has caused this financial instability.
Until there is an option to function in any modern society without using banks then banks and their profits should be regulated by governments.
If they don't change their behaviour, this is what will happen

Agree (0) Alert moderator
BJ:

08 Oct 2008 10:12:01am

Thank you Mr Rudd. This interest rate cut is a direct divident of your Government's hard work.

Australia needs a saviour like Rudd at this time like never before.

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Pudel:

08 Oct 2008 10:12:33am

I personally believe the banks should as a matter of course raise and lower interest rates in accordance with the reserve bank. I also believe if they need to change the difference between the base rate and the retail rate they charge they should have to do that independantly of the RBA. I realise costs are going up. I realise they wish to maintain their profits, but I believe they show more accountability when they have to make changes independantly of the RBA. It is harder to go out independantly and raise rates so therefore they will do it only when they need to. If the need for the .2% is so great why did they not do it a fortnight ago.

Agree (0) Alert moderator
LOZZA:

08 Oct 2008 10:12:54am

I think he is standing on the fence, not prepared to make a stand, time for Labour to get a leader and not a figure head.

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Tom:

08 Oct 2008 10:18:49am

Growth of consumption and waste of a few % per year is actually an exponential growth, like accumulating interest on a loan.

Continuing exponential growth is clearly impossible in the system of limited resources like Earth.

Whoever insists that exponential growth can continue in the system of limited resources is either a lunatic or "economist".

Tom

Agree (1) Alert moderator
Darren:

08 Oct 2008 10:19:52am

So the banks passed on 80% of the rate cut because of pressure from Turnbull? If he has that much influence, maybe he could fix the US economy while he's waving his magic wand.

I knew the guy was arrogant but that's just bordering on delusional.

Agree (0) Alert moderator
Vladimir Lenin:

08 Oct 2008 10:21:47am

Banks are run for profit and the tax law discourage us to save as term deposit. The bank are forced to borrow from overseas and the cost of credit is set on the international market. Government and oposition are playing the populist game again.
We are demanding protection of our deposits as in other developed countries - like US and Canada.
Our super is invested in banks(the ration of financial stocks is higher than mining in the stock market) and do expect a return or will take the funds outside australian system.
Inflation is ignored by RBA again and retirees will suffer again - hit by lower interest on term deposits and higher inflation. But the RBA Chairman has wages of $8,000,000 - inflation is no his concern.

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bitrich:

08 Oct 2008 10:23:01am

If you're wondering why confidence is declining maybe its because Rudd Labor so quickly changes its tune.

Agree (0) Alert moderator
Peter T.:

08 Oct 2008 10:27:20am

So, the banks are "on notice" according to Swan and Rudd. That is tantamount to BankWatch. More hollow words from a very unremarkable government.

Agree (0) Alert moderator
J C Denton:

08 Oct 2008 10:33:00am

Can all the smarty pants people ( you know who you are ) who posted during and after the federal election that interest rates would be sky high 17% through the roof the moment Rudd got elected please put their hands up if you got the balls to admit how totally wrong you were?!!?

But I suppose maybe you can wow me about how it was Peter Costellos book or his economic god aura that made the RBA do the " Biggest Interest Rate Cut in 17 years " ... not a claim costello has?! Liberal supporters please explain :)

Agree (1) Alert moderator
jane:

08 Oct 2008 10:39:46am

Gee Kevin 747 you have stayed in Austarlia long enougth to actually do something for us, things are looking up.

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spud:

08 Oct 2008 10:41:45am

Perverse I know, but had the previous government not heated the economy and driven up interest rates, the RBA would have not had the room to move now and make big cuts! Further, rising interest rates had previously slowed the housing market and the demand for credit, so that the slow down was already in place and isn't hitting quite as sharply as it would have otherwise.

If we had had a continuation of low interest rates and continued spiralling house prices, it would have meant the global credit squeeze would have hit us like a sledgehammer wielded by a psychopathic weightlifter. Perhaps we should be thanking Costello not just for running a tight ship, but for accidentally engineering a softer impact of the international credit squeeze.

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Enough please:

08 Oct 2008 10:43:20am

OK BIg Mal, you're such a legend let's ee you fix oil and petrol prices too, why haven't the petrol prices come down

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FRLT:

08 Oct 2008 10:45:06am

One can understand why our PM and Treasurer must cower to the Banks - the Banks are fundamental to an efficient tax collection regime. Effective tax collectors allows our governments to throw vasts sums of money at "would be"problem solvers instead of providing solutions and/or good government.

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Steve:

08 Oct 2008 10:46:45am

Have I missed something?

All of these Australian banks issuing profit warnings in the last month or so?

Banks offering better returns on savings because other sources of funds are getting relatively more expensive?

No? I thought not.

Agree (0) Alert moderator
kathy:

08 Oct 2008 10:48:32am

It makes sense. If a bank wants a piece of $4 billion, it should lower the rate.

Agree (0) Alert moderator
brentp:

08 Oct 2008 10:49:10am

Hasn't the Gov. already "lent" billions to the banks to keep funds available? The greedy buggers are recording record profits and still want to screw us "poor people....sheeples).

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mick:

08 Oct 2008 10:56:58am

What is the point in having a reserve bank interest rate when the banks do not follow it to the letter??
It really is a waste of time that the reserve bank says anything when the banks set there own rates, it is like the government telling the fuel companies the price should be $1.40 a litre and the said companies charge $1.80 a litre and laugh in the face of everyone!

The banks and fuel companies donate huge amounts to the politicians election fund so that is why nothing is now about them over charging{ripping us off} by the government!

I still think the best solution for all tax payers is to have a government owned Fuel wholesale and refinery and a government owned bank. This would change the whole situation and mean we tax payers make money and get charged less at the same time., but alas Australia is full of dumb voters and people that cant think past the next week!!!

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Jeff:

08 Oct 2008 10:58:11am

At least the message is consistent.

Initial pressure, followed by 'proportional pass through' followed by renewed pressure.

Flip flop, flip flop, flip flop.

These guys are a muppet show.

When will we hear from the treasurer, or is this now K Rudd's portfolio?

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RvS:

08 Oct 2008 11:04:52am

Oh K Rudd spin, you are such a tough talking guy!

I am sure that the banks are absolutely shuddering in their "jocks".

Of course governments of both persuasions have allowed the banking sector to become a totally uncompetetive cartel which just taxes its "customers" at will when banks perceive tough times.

I wonder if those banks will ever be honest enough to tell us all. Just look at how the NAB has been a disgracefull example over the last few years.

As I like to point out, banks hand out umbrellas when the sun is shining and take them away as soon as there is a prospect of rain.

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David Read:

08 Oct 2008 11:06:07am

In fact the banks only wanted to reduce their rates by 70 basis points, but the Prime Minister's Office talked them into 80 so that the media would not tag the PM Kevin .7

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JC:

08 Oct 2008 11:08:13am

Has anyone considered that all of the Big 4 dropped their rates by the SAME amount? I wonder if theres any chance the ACCC might take a look at this? Collusion or coincidence? Phone call from one bank head to another? Over to you Mr Samuels.

Agree (0) Alert moderator
DG:

08 Oct 2008 11:10:37am

If you don't like what your bank is offering.... Leave them!

Shop around. Actions speak louder than words.

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ReubenJ:

08 Oct 2008 11:16:45am

And just think if Mr Swan's "Inflation Genie" wasnt putting upward presure on interest rates we may have had an even larger drop.

But then we may find ourselves in the same situation as the US and Japan where their rates are so low they can not be cut any further to stimulate spending

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Heaven in QLD:

08 Oct 2008 11:23:42am

What's all the fuss about?

What financial crisis?

We in Queensland just heard from our Premier Bligh (the Iron Rail Lady) that we lucky folk are going to get a new choo-choo train under the city and river for a mere $14 billion dollars.

If you sad sacks down south are suffering, come on up to QLD. We've got money to burn!

What financial crisis?

Agree (0) Alert moderator
spewbag:

08 Oct 2008 11:24:06am

why not just reinstitute some sensible regulatory measures like salary capping senior/board salaries, mandatory reporting of operational costs when RBA rate movements are not passed on and other anti-collusion requirements that would maintain competition but stop the major banks from threatening customers, small business and the government.

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Pablo:

08 Oct 2008 11:29:03am

"they must do so when economic conditions stabilise." Who will determine when/if we reach this point?
By the time we do most people would have moved on and forgotten Kevin Rudd made this comment in the first place and the status quo will be maintained.
I for one would like to use the "I can't afford it so I will not pay" excuse the banks are employing at the moment when they next raise interest rates.

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DR:

08 Oct 2008 11:32:23am

The only reason we didn't get the full rate cut is Rudd and Swan told them they didn't have to. They would have looked silly if they did. Sometimes its better to say nothing, but that is hard when you are a politician.

What everyone hasn't read in is the RBA think the economy is stuffed, the only reason you cut 1%.

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Wake up Australia:

08 Oct 2008 11:33:10am

I wonder if those people that voted K Rudd into office last year realised that they were also electing a defender of banks profits?

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renn:

08 Oct 2008 11:37:10am

Self funded retirees, are going to find it hard as the cost of food, fuel and everything else has sky rocketed.
Luckily Im not one but I do feel for people on a pension or retired who rely on life savings to get by.
They are the last to complain usually so lets hope the govt. can do something to ease the pressure on them.

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colin:

08 Oct 2008 11:49:39am

Swanny and K Rudd are off with the fairys when they asert their lack of economic and financial credentials and regarding the stance with the banks.
I seem to recolect some years past when the labour govt was in power the banks had afreeze on the max that they could pass onto mortgage holders or was it the liberal govt anyway it was a max of 13.5%. Why can't the govt get their act together and apply this principle both on borrowers in the form of legislation and this goes for credit card holders and the term deposit holders by way of interest income.
Im not advocating 13.5% but a maximum of 2% on RBA rates.
But this govt does not have the guts.

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Rupert:

08 Oct 2008 11:59:05am

Could you please be more accurate when reporting banks announcing interest rate cuts. Banks have not cut rates but rather announced an intention to cut rates. The last rate cut announced by my bank after the RBA cut rates in early Septmebr was not applied until the very last day of the month - a full 4 weeks after the RBA cut its rate. Of course when rates go up my bank increases the rate usually the day after the RBA increases its rates. Yet another way these greedy institutions increase their massive profits at the expensive of their customers.

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Vincent:

08 Oct 2008 12:00:36pm

Just can't believe this crapp about Banks unable to pass on the full cut because the world's financial system is in crisis.
THE BANKS HAD NO HESISTATION WHATSOEVER PASSING ON ALMOST IMMEDIATELY 100% of all 8 INTEREST RATE HIKES WHEN THE ECONOMY WAS ROSY AND BILLIONS WERE COMING IN FOR THEM.
So why give us 80% and not 100% of the cuts?
Either way we the consumers are the loosers. The bank executives still get paid millions in Bonuses regardless of the economic situation. I do not see KRudd or WSwayne stepping in as apologetists. What a load of crapp

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Fast Ben:

08 Oct 2008 12:03:34pm

The Financial Tsunami is coming to a place near you. Dont panic. Dont panic. 1% drop in interest rates to keep the debt bubble alive one more month. Forget about the fight against inflation. Consumer debt at record levels. Australia is decoupled from the US. Subprime is contained. The China iceberg will save us all. Man the life boats. Cash is king at last and the coming Recession will reward the prudent.

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Robert:

08 Oct 2008 12:05:02pm

In the spirit of bi-partisanship cooperation, why doesn't Kevin Rudd appoint Malcolm Turnbull as the new Commissioner of
Recession Watch ?

Problem solved.

Agree (0) Alert moderator
Spank:

08 Oct 2008 12:10:20pm

All these two pretenders have done is provide a running commentary on other institutions/countires actions. They have at no time provided an actual plan to get through this. A lot of talk about funds but no idea how to use them. They are truely clueless.

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Band aid:

08 Oct 2008 12:14:19pm

From memory it was the ALP government of the day that sold the CBA to the people. One could only imagine the blame game if it were the reverse.
Counsellor Rudd and his words of comfort are becoming harder to swallow even for the one eyed ALP folk.
The Big Ship that he so boldly said would take sometime to turn around during the election campaign has a dodgy rudder with Captain Krudd at the helm and his deckhands which consists of a pool of union administrators and a few human rights lawyers to swab the decks.
Thanks to the feeble Australian voters who were sucked in by Kyoto, PCs for every kid and Climate change we now have an inexperienced group of ego maniacs steering us into the Perfect Economic Storm.

Agree (1) Alert moderator
FRLT:

08 Oct 2008 12:19:57pm

What Mr Swan doesn't appear to understand is the Mr Rudd has done all but "chuck in the towel". Mr Swan actually thinks it is more important for him to be with the IMF in Washington DC rather than be here to face his electorate.

It is time for every elected representative to be amongst their respective constituents in these perilous times. Then go back into to Parliament reinvigorated by representing the wishes of those constituents - for a change. Even Mr Swan would acknowledge that apart from himself, there are some other clever contributers in his electorate to whom he ought to listen. It would be the same in every electorate judging by the feedback in this ABC forum.

Agree (0) Alert moderator
cpk:

08 Oct 2008 12:22:13pm

why dont we turn centerlink in centermortgage. for those people strugling to pay there mortgages, have the government provide a mortgage at say 1% above the reserve bank rates. That would reduce the amount of people losing the homes from the increase in petrol, groceries and everyday living expenses, and the governemt would be making a direct profit, rather than the banks.
It should not be setup for people to take out a new mortgage, but instead for those that cannot cope, or are about to be foreclosed on, and once these mortgage holders get back on track, they should have to transfer there mortgage back to the banks.
the income that the government earns should be put into affordable housing to assist in getting people into houses and thus aid in the housing crisis, and financial crisis. then the banks may become more competative, as they will have to compete with the government and provide better assistance to people in financial trouble

Agree (0) Alert moderator
fresh idea:

08 Oct 2008 12:23:23pm

Why doesnt K Rudd just get another Committee up and running then they the ALP factions can talk about it and talk about and when there voted out they can rest a sure their government super is well protected and they have all had fun excising there intellectual egos in the process.

Agree (0) Alert moderator
Doh:

08 Oct 2008 12:29:47pm

Perhaps it is too late for rational debate, but I have two problems with the banks failing to match the drop in official interest rates

1. It presupposes that the banks are borrowing from somewhere where the interest rate is higher than the official interest rate - where in the world is the rate higher than it is in Australia?

2. If the cost to the banks of borrowing is rising, why have they waited until an official interest rate cut to increase the differential when they have made several recent increases independent of the timing of changes in the official interest rates? Surely they aren't claiming to have held back because of a spirit of altruism!

Agree (0) Alert moderator

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Rudd puts banks on notice for further cuts

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Comments (79)

Simon:

shayne:

Andreu:

BG:

dave:

Andrew:

Bullfrog:

Andrew:

greenspan:

bluey:

ReubenJ:

Andreu:

Tank:

Libran:

magoo:

Remark:

pmoes:

bluey:

BJ:

laurence:

Pudel:

bluey:

LOZZA:

Tom:

Libran:

Darren:

Roberto:

Remark:

Smaug:

hugh jampton:

Vladimir Lenin:

Oz:

Jeff:

bitrich:

Peter T.:

Somewhat Perplexed:

J C Denton:

Roberto:

jane:

spud:

Enough please:

FRLT:

Steve:

kathy:

brentp:

mick:

Jeff:

RvS:

David Read:

JC:

Adam:

DG:

Vincent:

BK:

JC:

ReubenJ:

John O:

DR:

Heaven in QLD:

spewbag:

Pablo:

DR:

Jeff:

Wake up Australia:

renn:

colin:

Rupert:

kathy:

Vincent:

Fast Ben:

Robert:

Spank:

Band aid:

FRLT:

cpk:

Jeff: