RBA 'won't force banks to cut rates'

The Reserve Bank of Australia (RBA) has said it 'cannot guarantee' that retail banks will pass on to consumers a reduction in rates should it cut official interest rates, it has been reported.

It is becoming more apparent that the central bank will reduce the benchmark rate in either September or November but banks have been reluctant to promise that the decrease will be passed down the food chain.

Philip Lowe, assistant governor of the RBA, has said that there is "no obvious reason why" the banks would not pass on any reduction.

Finance minister Lindsay Tanner has confirmed that the government understands why a cast-iron guarantee cannot be given.

"I would expect, like the RBA, that any reduction of interest rates by the bank would be passed on by the banks, but I can understand their chief executive officers are being cautious about giving rolled gold guarantees about these things because they've got other factors that they've got to worry about as well," Mr Tanner said.

Economists have been divided over whether the RBA will cut rates by 25 basis points in September or November and consumers with a variable mortgage will be waiting with bated breath.

Across the world the US subprime mortgage crisis has forced banks to write down over USD$500 billion ($575 billion) worth of assets. Reports have suggested that the worldwide losses could reach between USD$1 trillion and USD$2 trillion before there are signs of a recovery.

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