The Reserve Bank of Australia (RBA) has joined in the growing row over whether retail banks should cut mortgage rates if the central bank does, saying they should.
Speculation remains rife that the RBA will cut its key cash rate next month, despite figures today showing stronger than expected wage growth and a large rebound in consumer sentiment.
The banks have not guaranteed to match any official rate cut.
But RBA assistant governor Philip Lowe said there was no obvious reason for the banks not to follow the RBA's lead.
Mr Lowe told the annual Retail Financial Services Forum in Sydney that the so-called 90-day bank bill rate - used as an indicator of banks' cost of funds - had fallen sharply in recent weeks.
"Over the last two or three weeks, the 90-day bank bill rate is down around half a per cent, so that significantly reduces the banks' marginal cost of funding," Mr Lowe said.
"I think that means that there is no obvious reason that the banks could not pass through any change in the cash rate."
The country's largest home lender - the Commonwealth Bank of Australia (CBA) - today reported a seven per cent jump in profits to $4.48 billion, drawing renewed pressure to cut rates from the federal government and unions.
But CBA boss Ralph Norris appeared in no rush to comply with an expected RBA rate cut.
"Over time, we would expect that the margin on home loans will revert to a level which was consistent to where it was say 12, 13 months ago," Mr Norris said.
Prime Minister Kevin Rudd said it was the "right and reasonable thing" for the banks to follow any move by the central bank.
"If you're a bank generating significant profits - and commercial banks have been generating significant profits in recent years - I would say that those banks owe it to working families ... that when official interest rates move that those moves should be passed on to consumers," Mr Rudd told reporters in Perth.
ACTU president Sharan Burrow said the banks had four times lifted their lending rates independently of the RBA this year, adding an extra $100 a fortnight to the typical mortgage repayment.
"Additional interest rate rises on top of the reserve bank have been proven to be more about profit gouging than about a serious downturn in the banking sector," Ms Burrow said in a statement.
Financial markets continue to fully price in a rate cut next month, despite today's positive data.
