Reserve Bank Deputy Governor Ric Battellino has told an international banking and finance conference hosted by UNSW that banks can no longer use borrowing costs to justify oversized rate rises.
Speaking at the 22nd Australasian Finance & Banking Conference hosted by the Australian School of Business at the Shangri-La Hotel, Mr Battellino also hinted that another official rate rise is unlikely in February.
Mr Battellino defended bank-driven rate rises, saying if banks had simply absorbed higher costs they would have fallen into loss, threatening their ability to keep lending.
''We estimate that if banks had not adjusted their lending interest rates to reflect their higher cost of funds over the past couple of years, they would now be incurring losses," he said.
However, he told the audience of bankers from throughout the Asia Pacific region that the current economic climate meant the justification for increases beyond any official rate rise had weakened.
''With the economy and business climate now improving, the economic justification for wider margins on loans is becoming less compelling, so it would be reasonable to assume that, in a competitive banking sector, we should see margins level out soon,'' Mr Battellino said.
The Deputy Governor gave the best indication yet that interest rates may be on hold.
"It would be reasonable to conclude that the overall stance of monetary policy is now back in the normal range, though in the expansionary segment of that range,'' Mr Battellino said.
The conference also heard from other international banking experts such as KPMG Pacific region chairman, Mr Michael Roux, and CEO of Merrill Lynch, Mr Craig Drummond.
Conference organiser, Professor Fariborz Mosharian said the Reserve Bank was the most significant central bank in the Asia Pacific region, in much the way the German Bundesbank was prior to the establishment of European Central Bank.
"In the Asia Pacific region the Reserve Bank of Australia is playing this role," he said.
In his opening remarks, Vice-Chancellor Professor Fred Hilmer said the conference was timely given the banking and finance world is looking for solutions to the global financial crisis.
"We are very pleased this conference provides a platform for the discussion of 'cutting edge' issues facing the world of banking and finance," Professor Hilmer said.
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