RBA: Interest rates more important than cash rate

Interest rates that are paid by borrowers are more important than the cash rate, according to the Reserve Bank of Australia.

The Reserve Bank of Australia (RBA) has said it believes interest rates, paid by borrowers and that people with savings accounts receive, are more important than the cash rate.

Glenn Stevens, governor for the RBA, maintained that interest rates would have to reflect inflation and said it is a "normal experience" in an economic expansion.

His comments came in a speech to the House of Representatives' Standing Committee on Economics and he looked forward to the organisation managing the expansion of the economy.

He added: "Issues of capacity, productivity, flexibility, adaptation to structural change and so on will once again come to centre stage, as they should. For our community to tackle those challenges successfully, monetary and financial stability are important conditions. The Reserve Bank will do all that it can to secure them."

But a return to "easy" Aussie credit conditions that the country experienced three years ago are not likely, because the world has changed during this time.

In addition, the access to credit for large companies has been good and is beginning to ease for smaller ones. This comment comes after one reporter said earlier this month that since the RBA maintained its latest interest rates level, larger banks will now suffer.

Danny John, writing for the Age, noted that banks have less of a chance to raise rates on credit cards and business loans.

However, Mr Stevens said that lenders should start letting people borrow more now that the economic conditions have improved.

Furthermore, Bill Evans, chief economist for Westpac, recently said that homeowners do not believe interest rates have currently reached their peak, despite them holding steady in February, as reported in the Sydney Morning Herald.

By Bret Clement