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RBA plays down banks' smaller cuts

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SYDNEY, Feb 22 AAP

February 22 2013, 3:07PM

Reserve Bank of Australia (RBA) has played down the difference between its own interest rate cuts and those made by commercial banks.

RBA governor Glenn Stevens on Friday told a parliamentary committee that banks' funding costs had gone up in past five years.

"The borrowers, I'm afraid they have to pay the cost of funding that the banks face," he said in Canberra.

"There's been a very intense debate over a few basis points in the movement in the gap between the cash rate and borrowing rates."

Mr Stevens said the banks' margins had fluctuated but had been in a reasonably narrow range for a number of years.

The RBA cut the cash rate four times in 2012, taking it to three per cent from 4.25 per cent.

Most of those cuts were not fully passed on when the major banks cut their standard variable lending rates.

After the RBA's most recent 25 basis point reduction in December, all four majors cut by only 20 basis points.

Mr Stevens repeated his point that the RBA had reduced the cash rate more than it would normally in order to compensate for the commercial banks' smaller reductions.

"I think the borrowers are paying approximately what we feel is the appropriate rate for the economic circumstances," he said.

"I can't fine tune that to the nearest basis point, but they're not hundreds of points from where we feel they should be.

"The gap between the cash rate and the whole structure at what banks borrow at, and lend at, has widened, in net terms, over five years.

"That's what global capital markets have handed to us and we can't make that go away."

By Jason Cadden