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Date Published : Friday, July 25, 2008
The "pain" of high interest rates could continue for many financially-stretched borrowers - even if the Reserve Bank of Australia (RBA) decides to cut the official rate, it has been claimed.
The Australian said concerns have been raised after senior executives at two commercial banks refused to guarantee that their respective organisations would pass on any reductions to consumers.
Commonwealth Bank chief executive Ralph Norris told the publication that rate cuts remain "hypothetical", adding that the institution would "review its position" at the appropriate time.
Mr Norris' comments follow a statement from the head of retail banking for National Australia Bank Andrew Thorburn, who said banks might respond to an RBA cut with a matching or smaller reduction, or "not change at all", the newspaper said.
It added that this could signal a break in the traditionally close relationship between the official base rate and commercial home loan charges.
"The cycle has been broken - and it should be - because the banks do not just fund off the cash rate; we have a whole different source of funds," Mr Thorburn said.
That could be bad news for borrowers - especially as a new report from Fujitsu and home loan lender Wizard said that with annual inflation hitting 4.5 per cent in the second quarter of the year, as many as one million households could be under mortgage stress by the end of 2008.
Wizard's founder Mark Bouris said: "Decade-high interest rates, softening house prices, increased share market volatility and skyrocketing petrol prices are unequivocally combining to hurt an unprecedented number of Australian households."
According to a recent survey by Genworth, 15 per cent of non-property owners believe they are in a strong enough financial position to buy a home.
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