Federal Treasurer Wayne Swan says the retail banks will be putting the economy at risk if they don't match any interest rate cut by the Reserve Bank of Australia.
The RBA will issue the minutes from its August 5 board meeting today a meeting where it appears to have had a marked change of heart about the economic outlook.
It has already clearly indicated that it intends to cut its key cash rate because of a rapid slowdown in economic growth financial markets expect the first move to be next month. But the retail banks refuse to guarantee they will follow suit, drawing a series of threats and warnings from the Government.
''This is a very serious issue,'' Mr Swan said. ''It's a very serious issue for households, it's a very serious issue for business, and it's a very serious issue for our national economy. There is absolutely no excuse for banks not to pass an official rate cut from the Reserve Bank in full, should that occur. Absolutely no excuse.''
Deputy RBA governor Ric Battellino and assistant governor Philip Lowe separately expressed similar sentiments last week, saying that borrowing conditions had improved for retail banks and shouldn't stand in the way of lower mortgage rates.
Some economists believe it was last month's independent mortgage rate increases by the retail banks that are forcing the central bank to act quickly in lowering rates, for fear of crippling an already slowing economy if no action was taken.
Lehman Brothers Australia chief economist Stephen Roberts said today's RBA minutes may show whether there was any discussion about cutting the cash rate at the August 5 meeting.
''It may be interesting to see whether there was any ... discussion about the size of rate cuts and their relationship to bank lending rates, which seem to have become the interest rates that the RBA has become most interested in for policy purposes,'' Mr Roberts said.
Markets are betting on a quarter percentage-point cut in the 7.25 per cent cash rate at the RBA's September 2 meeting, and at least one further cut before the end of the year.
The commercial banks have increased their lending rates by around 0.55 percentage points on top of the two increases made by the RBA this year, blaming the increases on the global credit crunch now into its second year which has forced up their own borrowing costs.
Mr Swan said there was justification for some of that increase by the retail banks.
''In recent times, the cost of borrowing money short term has come down and that is a considerable benefit to the banks,'' he said. ''What I've said is that we are always looking at the extent of competition within the mortgage market and if the banks don't move, I've said the Treasury are examining a range of options and all options are on the table.''
He would not elaborate on these options, but ruled out that the Government would regulate interest rates. ''There is no way in the world we can return to a situation where the Federal Government regulates interest rates,'' he said. AAP
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