Borrowers shouldn't expect much rate relief

THE RBA is widely expected to cut official interest rates today but borrowers have been warned not to expect too much relief.

THE Reserve Bank of Australia is widely expected to cut official interest rates today but borrowers have been warned not to expect too much relief.

The RBA is expected to cut rates by 50 basis points in an effort to shield the Australian economy from further fallout from the global financial crisis.

However, most analysts have suggested the commercial banks are unlikely to pass a cut in official rates on in full due to increased costs in credit markets.

Treasurer Wayne Swan yesterday stuck to his guns by refusing to demand the banks pass on a full cut, saying it was vital Australia maintained a strong banking system.

"We may take a hit in the opinion polls, but it's more important to be responsible than popular,'' Mr Swan said yesterday.

The Opposition maintains that the banks are highly profitable and can afford to pass on the full RBA rate cut.

Mr Swan said Australian families had every right to expect banks to pass on as much interest rate relief  "as is responsible'', while accusing the Opposition of running a populist line.

"When conditions normalise, we also expect banks to pass on any further relief promptly,'' Mr Swan said.

But Opposition Treasury spokeswoman Julie Bishop said passing on the full RBA cut would help to ensure the Australian banking sector remained strong.

"One of the most important ways to keep our financial sector strong is to ensure that Australians keep their jobs so that they can pay off their mortgages ... their bank loans,'' she told reporters in Perth.