Malcolm Turnbull says the commercial banks need to pass on the full interest rate cut to their customers, or explain why they have not. The prime minister also observed that financial markets thought the central bank would act sooner.
The Reserve Bank on Tuesday cut the cash rate by 0.25 percentage points to a record low 1.5%, but the banks have not passed the full cut through to consumers.
The banks responded to the central bank’s move on Tuesday by passing on some of the rate cut to their mortgage rates, and they telegraphed cuts to rates for business loans and increased rates for term deposits.
On Tuesday, the treasurer, Scott Morrison, was more nuanced in his response to action by the banks, suggesting they had telegraphed a range of adjustments, and “it’s for them [the banks] to make that decision”.
But on Wednesday, the prime minister went much harder than Morrison, telling reporters: “The commercial banks should pass on the full rate cut. They should pass it all on.
“They should do that, and if they are not prepared to do it, as appears to be the case, then their chief executives should explain very clearly to the Australian people and their customers why they have not done so,” Turnbull said.
“They should be fully accountable and it is up to them. They are big institutions. They operate with a very substantial social licence, and they owe it to the Australian people and their customers to explain fully and comprehensively why they have not passed on the full rate cut – and they must do so.”
The prime minister also made an explicit observation about the RBA’s decision-making – which is a practice politicians tend to avoid given the central bank is independent.
“The Reserve Bank governor’s statement speaks for itself, but can I just observe that most people in the market would have expected the Reserve Bank to cut rates sooner,” Turnbull said.
Later on Wednesday, the treasurer maintained the responses to the RBA’s move were a commercial decision for the banks, but he aligned his language with Turnbull. “The prime minister has said what I’ve said. They should pass it on in full,” Morrison told reporters in Adelaide.
Morrison was asked whether banks were leaving themselves vulnerable by their conduct and because of the continuing political pressure for a royal commission into the sector. The treasurer said the banks, like all “actors and participants in the economy” needed to prioritise their relationship with their customers.
But Steve Munchenberg, chief executive of the Australian Bankers’ Association, rebuffed the prime minister’s call to pass on the full rate cut. He said the industry had been explaining for eight years why the Reserve Bank does not determine bank funding costs.
He said about two thirds of bank funding comes from deposits, and the price of deposits has been going up.
“I know a lot of people in politics don’t want to listen to that, and have this view that somehow people are entitled to RBA rate cuts, but the reality is that banks’ cost of funding has been going up,” he said.
Munchenberg said, however, bank chief executives would take Turnbull’s advice about communication on board, because they are always thinking of better ways to explain their interest rate decisions to the public.
The shadow treasurer, Chris Bowen, told ABC on Wednesday the central bank had moved to cut the cash rate “because they are deeply concerned about the lack of investment coming through to ensure growth into the future”.
Bowen said the RBA had taken action because “without politicising the Reserve Bank, they showed deep concern about the [economic] transition underway”.
The shadow treasurer also criticised Morrison’s passivity. “The treasurer has no special powers in a deregulated financial market to ensure full flow-through, but the treasurer before the election beat his chest and said that he would call the banks in and make sure they didn’t pass on increased compliance costs,” Bowen said.
“Yesterday again he was silent on this issue, so he had one approach before the election and another approach after.”
Bowen told reporters later on Wednesday the government was chaotic and dysfunctional. “In relation to whether the banks should pass it on, the interest rate cut, the treasurer yesterday said it was a matter for them. Entirely a matter for them.”
“The prime minister said today they should pass it on and the treasurer a few minutes ago was scrambling to try and make his remarks fit the prime minister’s in a way which is just simply impossible to do.”
Bowen said Labor was concerned to have a royal commission into the banking sector because of concern about culture in the financial services industry, but the actions of the banks after the RBA decision “doesn’t reduce the case for a royal commission in the slightest.”
Turnbull said Bowen was intent on talking down the economy and trying “to spread a message of doom and gloom on the radio”.
The prime minister said if Bowen was concerned about investment, he needed to revisit Labor’s policy offering. “There is nothing in the Labor party’s policy in the lead-up to the election or now that promotes investment,” he said.
“Absolutely nothing. Labor’s policies consist of a series of measures that will discourage investment.”
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