RBA forced to cut deeper: official
RBA forced to cut deeper: official

The Reserve Bank of Australia had cut the official interest rate more than it otherwise would have needed to over recent years to offset rises in bank funding costs.

RBA deputy governor Philip Lowe told a forum in Melbourne the cash rate was about 1.5 percentage points lower than it would have been had commercial lenders felt able to pass on in full all the official rate cuts.

The cash rate currently stands at 3.5 per cent.

Greater regulation of the financial sector meant banks were paring more to borrow money than in the past, Dr Lowe said.

Meanwhile, a loss of faith in financial institutions in the wake of the global financial crisis had also made savers less likely to lend to banks, further pushing up the cost of borrowing.

"In effect, what we are seeing as a result of both market and regulatory developments is an increase in most interest rates in the economy relative to the cash rate," he said in a speech to the Australian Conference of Economists.

The RBA has cut the cash rate by 1.25 percentage points since November and the current rate is 3.75 percentage points lower than its high of 7.25 per cent before the GFC in 2008.

Prior to 2007 the standard variable mortgage rates charged to bank customers averaged around 1.50 percentage points higher than the cash rate, compared to an average of 2.70 percentage points today, Dr Lowe said.

The West Australian

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