Peter Martin, Eric Johnston June 6, 2012

THE Reserve Bank stands ready to cut rates again following yesterday’s 0.25 percentage point reduction if the global economy slows further or if consumers fail to recover their confidence once the carbon tax is introduced.

The major banks are expected to detail their positions from today, with few expected to pass on the entire rate fall.

The Bank of Queensland was the first to move within minutes of the Reserve Bank yesterday, lowering its rates by 0.20 points, taking its standard variable rate to 6.91 per cent.

ANZ will announce its decision on Friday. National Australia Bank said it stood by its commitment to offer the lowest rate of the big four.

The Reserve said it cut its official cash rate in part because of a slowdown in China and turmoil on financial markets. But the Herald understands that also central to its decision was a concern that, no matter how good the economic news, Australians are scarcely noticing it in an atmosphere muddied by campaigning against the carbon tax.

It believes lobbying about the carbon tax is acting as a drag on consumer confidence and obscuring the benefit of the income tax cuts that will come into force with the tax on July 1.

The governor’s statement issued after yesterday’s meeting referred to confidence obliquely, saying despite modest economic growth and low unemployment, households and businesses continued to “exhibit a degree of precautionary behaviour”.

If confidence does not lift and the global financial situation gets worse the bank will cut rates again. It believes the low inflation rate gives it room to do so.

The Treasurer, Wayne Swan, raised the possibility of further cuts yesterday, saying the Reserve had “further room to move”. He appealed for Australians to become more confident, saying it was important they understood the economy was strong compared to the rest of the world.

The Reserve’s cash rate stands at 3.5 per cent, just half a percentage point above the low of 3 per cent during the global financial crisis. Then rates slid to 5.75 per cent. Before yesterday’s cut they stood at 7.05 per cent.

Official advice provided to the Treasurer says the big four can afford to pass on the cut in full.

The difference between official cash rates and the standard variable rates charged by banks has blown out to the widest level since banks began pushing through out-of-cycle interest rate rises four years ago.

But in yesterday’s statement, the Reserve said renewed international turmoil was pushing up bank funding costs once more.

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