Treasurer Josh Frydenberg has savaged the big banks for failing to pass on interest rate cuts in full to their customers.
Opposition Leader Anthony Albanese has also joined the pile-on, labelling the lenders a “disgrace”.
Interest rates have dipped below one per cent for the first time in Australian history, hitting a record low of 0.75 per cent.
All eyes are now on lenders to pass on the cuts in full.
So far, the Commonwealth Bank and National Australia Bank have only passed on about half of the 25 basis point cut.
Some of the smaller lenders have passed on the rate cut in full.
“The banks have a lot of explaining to do because this is very disappointing,” Mr Frydenberg told the Nine Network on Wednesday.
“Customers should vote with their feet.”
Mr Albanese also gave the banks a spray.
“The banks need to pass on the interest rate cut in full and the government needs to do something about it,” he told reporters in Queensland.
“They can’t just sit back as spectators while this occurs.”
The Australian Chamber of Commerce and Industry urged the banks to pass on the rate cut in full to lift spending on retail.
“Small businesses have been doing it tough over the past year. This has particularly affected discretionary spending in small retail businesses, including cafes and restaurants,” chief executive James Pearson said.
The Reserve Bank is already preparing to cut rates further if the economy remains stagnant.
The record low of 0.75 per cent is the third cut this year, as the central bank tries to push the unemployment rate down and inflation and wage growth up.
The RBA said in a statement that the economy still had spare capacity and lower interest rates would help make inroads into that.
“The board … is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time,” the RBA said.
AMP chief economist Shane Oliver predicts rates will drop again to 0.5 per cent on Melbourne Cup Day, and down to 0.25 per cent early in 2020.
Deloitte Access Economics partner Chris Richardson says there are downsides to cutting rates so low.
“There is a risk that we’re spending down our recession insurance,” Mr Richardson told Sky News.
The RBA said wage growth remains subdued and there is little upward pressure, with increased labour demand being met by more supply.
“Caps on wages growth are also affecting public-sector pay outcomes across the country. A further gradual lift in wages growth would be a welcome development,” the bank said.
“Taken together, recent outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.”
The low wage growth means Australia hasn’t met the RBA’s inflation targets, leaving the national economy stagnant.
The RBA says signs of a turnaround in the Sydney and Melbourne housing markets are promising, but new building activity has weakened and growth in housing credit remains low.