All about business

Australian Prime Minister Kevin Rudd said the nation's banks have a responsibility to lower borrowing costs if the Reserve Bank of Australia cuts its benchmark interest rate.

“Banks will be under huge pressure in the marketplace to act in response to official interest rates,'' Rudd said during an interview today with Radio 3AW. “Look at the overall profitability levels of these banks, they are huge. Therefore, they have a responsibility to pass on changes.''

Home buyers are paying more for mortgages after the nation's five biggest lenders increased mortgage rates by an average of 105 basis points since the start of this year amid rising credit costs. The RBA has boosted rates by 50 basis points in that time.

The effect of higher lending costs is beginning to seep into the broader economy. Lending to consumers and businesses in June rose at the slowest annual pace in almost six years, according to the central bank. Retail sales fell in June by the most in six years, the Bureau of Statistics said yesterday.

Rudd's comments were echoed by Treasurer Wayne Swan, who said in Coolum, north of Brisbane, that “customers will be absolutely filthy if the banks don't pass on, within a reasonable time, any official cash rate reductions.''

Inflation Target

Central bank Governor Glenn Stevens raised the benchmark interest rate to 7.25 percent in March, the fourth increase since August last year online payday loan. The country's benchmark rate is at its highest in 12 years and is 5.25 percentage points higher than the U.S. Federal Reserve's rate.

Stevens said last month that there is a “good chance'' the economy will slow enough to bring inflation back within his target range.

Investors have increased bets that the central bank will cut interest rates, according to a Credit Suisse Group index based on trading in interest-rate swaps.

Traders expect Stevens will lower the benchmark rate by 70 basis points, or 0.70 percentage points, in the next 12 months. At the start of July, they forecast 19 basis points of gains.

“Every economy in the world is facing challenges in difficult global economic conditions,'' Rudd, who won office in November, said today. “It is very important to keep downward pressure on inflation.''

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