Rudd Says Banks Should Cut Lending Rates If RBA Acts

By Rebecca Keenan

Aug. 1 (Bloomberg) -- 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 out 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 in May fell by the most in six years, the Bureau of Statistics said yesterday.

Central bank Governor Glenn Stevens raised benchmark interest rate to 7.25 percent in March, the fourth increase since August last year. 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.

``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.''

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net