The Reserve Bank of Australia is expected to cut the cash rate by 0.25% to 4% today, putting pressure on banks to pass those savings onto its customers.

Some commentators are positive the Reserve Bank of Australia will cut the cash rate, but question if the big banks will pass it on. Others query if the RBA will even cut rates at all.

Treasurer Wayne Swan has echoed previous comments, saying that customers should question their bank if rates aren’t passed on. “I think customers would be rightly angry if their bank decided to withhold any cut,” Swan said. “Banks remain very profitable, with very healthy returns on equity and net interest margins.”

“Borrowers pay what the RBA, in effect, wants them to pay,” claims Steven Münchenberg, chief executive of the Australian Bankers Association, in The Australian Financial Review.

Rates need to be cut again, declares Ian Verrender in The Age:

“The professional punters may be divided about which direction the Reserve Bank will jump today but there are 107 good reasons why our central bank should cut interest rates again. And all of them relate to the strength of the Aussie dollar.”

Jennifer Hewett at The Australian disagrees:

“The RBA certainly can’t afford to ignore at least the potential for European disaster, as well as the reality that – contrary to the protestations from the politicians – bank funding costs in Australia have already increased as a result.

It means that in making its monthly decisions, the RBA considers whether or not the banks are likely to pass on the full amount of any reduction in the cash rate. This time around the no-signals from the banks are even clearer than usual.”

The main reason for the profitability of Australia’s banks are its Aussie customers, so it’s time to start giving back — something banks have been reluctant to do, argues Tim Colebatch in The Age:

“Why do the banks behave this way? Because they can. As the graph shows, since 2007 they have taken from mortgage customers the equivalent of five interest rate cuts. Some of that was necessary, especially in 2009. But there is now a good case for them to start handing it back – to give customers bigger cuts than the RBA offers.

…Julia Gillard and Tony Abbott should unite to tell the banks: hand it back. A healthy garden needs more than four healthy trees.”

For evidence of why the RBA should perhaps hold off on a rate cut, we should look to Canada, says Christopher Mason in Business Spectator.

“Canada entered the 2008 financial crisis in similar interest rate territory to that which Australia finds itself in at the start of an uncertain 2012. Canada’s benchmark interest rate in January 2008 was 4.25 per cent – the same as the RBA’s rate (this morning). Within 17 months, the Bank of Canada had carved its rate down to 0.5 per cent.

Though the deep rate cuts were among several key factors that contributed to Canada’s stability through the worst of the 2008-2009 financial crisis, the country has paid a steep price. Canadians are staring at the possibility of a renewed crisis with little remaining leverage and a fear of what will happen when rates inevitably creep higher for a population struggling to service existing debts even at bargain interest rates.”