The Reserve Bank of Australia says the commercial banks have no excuse not to pass on any official cuts in interest rates.
One of Australia's largest commercial banks, the Commonwealth, reported a 7 per cent jump in profit to $4.8billion yesterday, but refused to guarantee it would pass on a rate cut.
Speculation remains rife that the RBA will cut its key cash rate next month, despite figures yesterday showing stronger than expected wage growth and a large rebound in consumer sentiment.
RBA assistant governor Philip Lowe said that there was no obvious reason for the banks not to follow the RBA's lead, while Prime Minister Kevin Rudd repeated his call for banks to pass on any rate cut to consumers straining under the financial pressure of rising prices.
''I would say that those banks owe it to working families, working Australians who are under financial pressure at the moment, that when official interest rates move that those moves should be passed on to consumers,'' Mr Rudd said.
Commonwealth Bank chief executive Ralph Norris refused yesterday to guarantee it would pass on any rate cut to mortgage holders, echoing the stance taken earlier this week by Westpac chief Gail Kelly and St George head Paul Fegan.
But Mr Lowe told a financial services forum in Sydney the global cost of sourcing funds was coming down as seen in the fall in the 90-day bank bill rate, used as an indicator of the cost of funds.
''Looking over the last two or three weeks, the 90-day bill rate's down around half a per cent, so that's significantly reduced the banks' marginal cost of short-term funding,'' Mr Lowe said.
''I think that means that there's no obvious reason that the banks could not pass through any change in the cash rate.''
Figures issued yesterday showed the recent fall in petrol prices and the prospect of a rate cut buoyed consumer confidence in August, after falling to its lowest level since 1992 in the previous four months.
Wages also rose 1.2 per cent in the June quarter but economists said the rise was ''benign'' and unlikely to affect prospects of a rate cut over the next few months.
The earliest opportunity for a cut in the official cash rate is when the RBA board next meets on September 2.
ACTU president Sharan Burrow supported the call for any rate cuts to be passed on immediately and said that, despite the global credit squeeze, banks had been looking after their profits first rather than reducing margins for consumers.
She accused them of profit gouging by raising interest rates four times independently of the RBA since January, adding $100 a week to the cost of servicing a typical home loan.
''If working families can't pay their mortgages, can't manage the family budget, then the economy suffers and even banks and their shareholders don't win in the long term,'' Ms Burrow said.
The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 9.1 per cent in August, after consecutive monthly falls since April.
Westpac chief economist Bill Evans said the result was no surprise as sentiment had fallen while mortgage rates remained steady and petrol prices climbed by 15 per cent. As petrol prices fell by 8 per cent in July and the RBA threw out the first hint that it could cut interest rates by the end of the year, sentiment headed upwards.
''But the sharp slowdown in credit growth in recent months appears to have really unnerved the Reserve Bank,'' Mr Evans said.
''The bank's message has been that markets can most likely expect a rate cut in September. However, there is still considerable scepticism amongst consumers.''
The index showed sentiment among renters rose by 14.7 per cent, and by a more modest 6.9 per cent among those paying off a mortgage.
ANZ Bank economists Alex Joiner and Warren Hogan said the wage rise reinforced the view that the RBA needed to tread carefully on rates.
They believe a cut of 0.5 of a percentage point could come as early as next month, followed by a 0.25 cut in November, provided the September quarter CPI figure is not too high.