Economists believe weakness in the domestic economy is likely to push the Reserve Bank to cut the official interest rate today, but they do not expect the banks to pass it on in full.
Most economists believe the Reserve Bank will cut the rate by 25 basis points, taking it to the same emergency level of 3 per cent it reached during the global financial crisis.
Rising unemployment, falling resource investment, weaker economic growth and a high dollar are all factors weighing on the RBA.
Recent data has revealed weakness in retail sales, investment and employment.
NAB senior economist Spiros Papadopolous says this month's decision is focused on the Australian economy.
"We've seen in previous interest rate decisions what's been happening globally has been the bigger driving force behind their decision," he said.
"But this time around, given that we have seen some stability in the global economy, we have seen some better signs coming out of China, I think it's just a question now of how much stimulus the Reserve Bank thinks the Australian economy needs to get domestic demand up and running again, to help support the sectors of the economy outside of mining that have been doing it quite tough and try and also give a bit of a kick along to business and consumer confidence." There are some though who believe the data is not bad enough to prompt the RBA to move and they say it is likely to wait until conditions worsen.
'Shop around' for rate deals If the RBA does cut, borrowers are not likely to see all of the reduction, with the Australian Bankers' Association warning that banks are unlikely to match any move by the central bank.
The Bankers' Association's chief executive, Steven Munchenberg, says deposit rates are remaining relatively high due to competition for cash, meaning banks' funding costs have risen.
"Prior to the GFC, term deposits were priced on average 200 basis points below the cash rate.
Now, they are 20 basis points above the cash rate," he noted in a statement.
"While interest rates on deposits remain attractive and competitive for savers, when combined with the cost of wholesale funding, deposits continue to put pressure on the overall cost of funds for banks." Federal Finance Minister Penny Wong says bank customers should consider switching banks if their institution does not pass on the full value of any official interest rate cut today.
"The banks should do the right thing by their customers and I don't think any customers think the non-passing-on of rate cuts is a good thing," she told ABC Radio's AM program.
"If your bank's not giving you the right deal then we do have competition, we do have a number of institutions out there, and people should shop around for the best deal." Steven Munchenberg offers bank customers similar advice if they are dissatisfied with their current financial institution.
"My advice to customers when it comes to home loans, shop around because there is a very competitive mortgage market in Australia," he said.
"Banks routinely offer discounts of around 70 basis points off the advertised standard variable rate to approved customers."