By Jill Fraser

It's pretty much a done deal that when the Reserve Bank board meets in two weeks time a cut in the official interest rate will transpire due to the rapid slowdown in economic growth.

But will consumers who are battling mortgage repayments see any of it? That continues to be a heavily debated issue.

There’s growing pressure on the retail banks from the Prime Minister, Kevin Rudd, Federal Treasurer, Wayne Swan and the deputy head of the Reserve Bank, Ric Battelino to do the right thing for consumers and the economy.

But the banks have warned against assuming that they will follow suit or that a cut to lending rates is a foregone conclusion.

Economists are divided.

Finance commentator, Michael Pascoe and Professor Fariborz Moshirian, School of Banking and Finance, University of NSW believe that banks will cave in to the political and public pressure while Professor Joshua Gans, Melbourne University Business School maintains that consumers won’t see a red cent of it in their mortgage rates.

Gans puts this down to a lack of competition in the banking sector, which he says has occurred as a result of the disappearance of many non-bank lenders from the scene due to the collapse of the securitisation market and the high cost of international borrowing.

Non-banks played a significant role in breaking the stranglehold previously held by the banks. The benefits that borrowers have enjoyed could be lost if competition ceases to exist and a bank oligopoly could once again take hold, says Gans.

Do you think banks should pass on the rate cut? Click here to discuss this on FatCat's MoneyConfessions

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