With some economists expecting another cut early next year, Mr Hartzer said there was a risk a further reduction in rates would damage confidence, instead of improving it.
“I think it has helped, but I have some sympathy for the view that it’s not obvious that further rate cuts increase confidence, they may actually dent confidence,” Mr Hartzer said in an interview with The Sydney Morning Herald and The Age.
“So, I think we’re certainly approaching the end in terms of interest rates being able to stimulate activity.”
The Reserve Bank, which left interest rates on hold on Tuesday, has maintained rate cuts are helping the economy but conceded they are not working in the same way as in the past.
Westpac shares fell as they resumed trading on Tuesday after the bank completed its $2 billion institutional placement, issuing the new shares at $25.32, a 9.2 per cent discount to the previous price before the capital raising.
The stock finished the day 2.5 per cent lower than its pre-raising price at $27.17, but higher than the price at which the new shares were issued in the placement.
Mr Hartzer is the latest senior banker to question the impact of further rate cuts – which the banking industry blames for squeezing profit margins. Lower rates also make it harder for banks to expand their loan books because customers can get on top of their debts faster.
Bendigo and Adelaide Bank managing director Marnie Baker last week claimed rate cuts and tax cuts were having a “perverse” effect of sapping consumer confidence.
ANZ Bank chief executive Shayne Elliot last week said interest rates cuts were having some effect but only 7 per cent of its customers chose to reduce their monthly loan payment when the bank had cut rates recently.
“That tells you a lot, that actually people are cautious, and people I think, are still a little bit nervous about the outlook,” Mr Elliott said.
Macquarie Group chief executive Shemara Wikramanayake said last week interest rate cuts played a critical role in stabilising markets during the global financial crisis but they had less impact now.
“Now we’re at a point where the rates are very low and have been low for a long time. They’ve got, I think, diminishing impact when you start from a very low base and that’s why I think you see a lot of central banks saying they want to work alongside fiscal policy at this point in the cycle,” Ms Wikramanayake said in an interview after the bank’s results on Friday.
One part of the economy that appears to be responding to rate cuts is housing. Westpac on Monday forecast housing credit growth would lift from 3.1 per cent to 3.5 per cent over the bank’s current financial year.
Westpac’s chief economist Bill Evans is forecasting Sydney and Melbourne house prices will rise 12 per cent from their low points by the end of next year, with risks “to the upside.”
Mr Hartzer played down the chance of regulatory intervention in the mortgage market, saying recent price rises were a function of demand returning as “incremental supply is tapering off and starting to fall”.
“I think we’re just seeing the normal process by which prices reflect imbalances in supply and demand and I don’t think there’s anything much more going on than that,” Mr Hartzer said.
Clancy Yeates is a business reporter.