Pressure on RBA to cut official cash rate as non-mining slows

The Reserve Bank of Australia (RBA) is scheduled to reveal whether it will cut the official cash rate tomorrow afternoon, with pressure is mounting on the RBA to lower rates from politicians and business groups as the non-mining sector slows.

Prime Minister Julia Gillard said yesterday that she had: “Never, at any time, instructed the Reserve Bank what to do.

“When I speak about the Reserve Bank I consistently make the point that the Reserve Bank is independent of government and it exercises an independent judgment about interest rates,” she said.

Westpac may cut some home loan rates tomorrow according to the Australian Financial Review.

ANZ’s CEO of Australian banking Phil Chronican said there has been a massive change in the relative cost of funding for banks both from deposits and wholesale term debt.

“It was no longer economic to provide mortgages just by moving with the RBA rate,” Chronican said according to the AFR.

“These costs have continually eaten away at bank margins and you’ll see that.”

Victorian Premier Ted Baillieu told the Liberal Party state council meeting yesterday it was not for governments to intrude but that Victorian businesses would “very much welcome” any interest rate relief.

Some banks are expected to withhold part of any cut made by the RBA, according to the AFR.

HSBC Bank Australia economist Paul Bloxham thinks any cut over a quarter of a percentage point may “frighten the horses” while rents, education and energy costs continue to rise.