It seems almost certain the Reserve Bank will lower interest rates, probably by 50 basis points, tomorrow. A fall had seemed indicated anyway, on the basis that the bank's pressure on the brake from last year seemed to have slowed economic activity, but was even more strongly indicated after the world economic crisis of recent weeks put pressure on liquidity around the world.
Australia, almost everyone official has insisted, is in a far better position than almost any industrialised country to weather the storm, because our economic house has been in better order, our banks have been less exposed to the US deterioration in real estate prices, and our fundamentals are strong.
Right now, however, the Liberal Opposition is playing a chancy game, both by insisting that banks fully pass on the benefit of any interest rate cuts and by accusing the Government of failing to support its call. The implication intended for a populist audience is that the Government is siding with the banks against consumers, and has, somehow, fallen into their pockets. All the better an impression to be planted, some might think, given that Opposition Leader Malcolm Turnbull is a former merchant banker. If he endorses giving the banks a good kicking for being rapacious bastards, then presumably they deserve it.
It is to be hoped consumers do get relief from increased interest rates on their mortgages because of official rate movements, but also very important that voters remember that the ripples of the Wall Street, and associated, disasters of recent weeks and of the US Congress bail-out, finally adopted on Saturday are still washing around the world, in many cases still with tsunami-like effect.
It is also clear that efforts, made or intended (in part by implementing the US bail-out package) have not yet restored normal inter-bank liquidity or market confidence to anything like the levels prevailing before the big crashes. In Europe, over the weekend, it appeared that several big banks including ones in Germany and Ireland were in serious trouble, and emergency meetings of finance ministers were trying to coordinate ways of maintaining confidence in their system, well aware that a wave of runs on individual banks, or even a fresh wave of wariness about making inter-bank loans, could prolong and intensify the world crisis.
Moreover, there is every appearance that both the US and Western Europe are by now in, or sliding into, recession, a development that makes confident local forecasting difficult.
In such a circumstance, it would hardly surprise if Australian banks took a prudent look at their ratios, and held back, at least for the moment, from fully passing on rates cuts. It is by no means clear, for starters, that these banks for all their formidable credit ratings (better than those of almost any other banks in the world) will have ready access to cash at the new formal rates set by the Reserve Bank. They must, moreover, constantly re-examine their positions not only in terms of losses they have sustained on American markets (now thought to be factored in) but the risks of further losses caused by continued uncertainty in Europe, as well as likely changes in movements of (and prices of ) currency caused by the new debt arrangements in the States.
From the viewpoints of the banks, the Australian economy and probably even Australian mortgage borrowers, it would probably be better if the banks focused on how they want their balance sheets looking six months from now rather than let their judgment be determined by day-to-day public relations.
In a tough international competition for cash, the banks getting it will be the ones with the best credit ratings, not those whose prudence has been tempered by fear of populist bank-bashing from Turnbull or his deputy, Julie Bishop. Indeed, some of the sillier comments from Turnbull and Bishop, who is now the shadow treasurer, accusing the Government of ''running up the white flag'' to the banks, could easily be read, six months hence, as having been highly irresponsible, perhaps as having bullied some institutions into acting against their best interests.
Perhaps the hectoring comes from some confidence that the Australian system has proven robust enough, and Australian economic prospects still strong enough, that our banks have little less to fear from the world financial crisis. If they think that, perhaps they are right, at least while commodity demand from India and China remains strong. It would be foolish, however, for Australians to be smug, not least while we buy and sell money, as much as goods, on international markets, and not while an intangible thing called ''confidence'' is as important in setting the price, quantity and, to a degree, quality of money and goods.
Banks are bastards, and even Australian ones have had their role, and deserve their share of blame, for the culture that has given us this financial crisis. But mere pandering to their unpopularity is no substitute for rational economic debate.