Rates:passing on without passing out

We should know – at 2.30pm today – Sydney time – just what the Reserve Bank has decided to do, on interest rates.

The bank is promising to post that decision, on its website, at that time.

If it cuts rates by 0.5 percentage points, as many expect, another question will arise.

That is, will Australia’s big four banks pass on the full cut to their customers, or just part of it?

That’s a tricky question, in a credit crisis.

The real problem that the world faces now is that the world’s banks have stopped lending to each other.

Or, if they do, they are demanding high interest rates.

Having already weathered 12 consecutive rate rises, relieved by just one small fall, Australia’s home-buyers and business people are, understandably, desperate for a little relief.

Once again, though, a little patience might be wise.

The situation we face now is far from normal.

Let alone ideal.

And just about the last thing Australia needs now is one of its banks to join the global bank sick list.

So the government does have a point, when it urges the banks to pass on as much of today’s rate cut, as they can, safely.

The opposition’s argument, that they should pass on the full rate cut, regardless of the consequences, certainly has appeal.

At least in the short term.

But any pressure on the banks, which could weaken them, also carries risk.