The Reserve Bank of Australia (RBA) decided on a hefty cash rate cut in May partially because the big lenders had independently jacked up their rates.
After its May 1 board meeting, the RBA cut the cash rate by half a percentage point to 3.75 per cent, the largest reduction since February 2009 and the first drop since December 2011.
The move came after board members decided at in February to keep the cash rate on hold at 4.25 per cent.
However the big four banks and several other smaller lenders increased their standard variable loan rates by six to 12 basis points that month – citing what they said were the increased cost of funds.
Those rate hikes were uppermost in the RBA board members’ minds when they held their monthly meeting in May.
The minutes of the meeting, released on Tuesday, showed the board members discussed lenders’ interest rate hikes and the need to try to bring down those rates.
“They judged it to be desirable that interest rates move below that had prevailed in December,” the minutes said.
“Accordingly, the board decided that a reduction of 50 basis points in the cash rate was, in this instance, necessary in order to deliver the appropriate level of borrowing rates.”
The minutes revealed that slowing credit growth and rising funding costs for lenders was also discussed.
“Credit growth for households had been marginally lower over the past year than over the previous year, and business credit was rising only at a very modest rate,” the minutes said.
“At the margin, wholesale funding costs had declined over recent months, though they remained higher, relative to benchmark rates than in mid 2011, and the lagged effects of this were still working their way through the funding structure.”