Swan warns banks to pass on rate cuts

WAYNE Swan has told the nation's banks to pass on rate cuts, warning he has weapons to make the banking system more competitive.

Swan warns banks to pass on rate cuts

TREASURER Wayne Swan has told the nation's biggest banks to pass on rate cuts, warning them he has weapons to make the banking system more competitive.

Mr Swan has told the banks there is "no excuse" not to lower interest rates if the Reserve Bank moves, as expected by economists, to cut the official rate when it meets on September 2.

"I think it's pretty simple – when the official cash rate goes down, if it goes down, then borrowing costs should follow," Mr Swan said.

When asked what weapons he had available if banks did not tow the line, Mr Swan said the Government would not re-regulate financial markets but believed in competitive markets.

He hoped to see the market become much more competitive and Treasury had all the options on the table.

Mr Swan's comments followed statements by Reserve Bank assistant governor Philip Lowe last week that there was "no reason" for banks not to pass on changes in the cash rate.

Commonwealth Bank chief executive Ralph Norris has said the bank will "pass on as much of the cut as we prudently can", but has stopped short of pledging to pass on a full 25 basis points.

"I don't think we live in a communist country," he said last week.

"I don't know of any legislation that says that the Reserve Bank actually sets interest rates for commercial operations in this country."

Mr Swan dismissed this, saying the public had a right to expect their home loan rates to come down when official rates fell.

"A substantial proportion of their borrowing costs come down when the RBA takes the decision to move rates down," he said.

Opposition Leader Dr Brendan Nelson yesterday criticised Mr Swan's approach, describing him as the "mouse who roared".

"The Treasurer should be meeting with the CEOs of the four major banks and telling them directly to pass on in full any cut in official interest rates," he said.