The rising exchange rate is working to restrain rises in the cash rate in Australia, the Reserve Bank of Australia confirmed in the minutes of its October board meeting, published yesterday.Since the 5 October board meeting, the Australian dollar has appreciated by two per cent on a trade-weighted basis and three per cent against the US dollar.In minutes worded in a way that suggested a division of views at the board meeting, the minutes note that "a case could be made to increase the cash rate at the current meeting, based on the medium-term inflation outlook and the fact that developments had continued to be broadly consistent with the central forecast scenario."The case to wait before making a tightening move was that the economy was still expected to continue growing at trend in the near term, credit growth had softened somewhat and the rise in the exchange rate would, if it continued, effectively be tightening financial conditions at the margin."Tighter financial conditions are something banks appear to want their customers to experience.Bank executives speaking out recently on the case for margin increases (including those of ANZ, CBA and Westpac) have laid out a case, albeit one exaggerated and reliant on forthcoming rather than actual rises in the cost of funds."Banks' funding costs had been relatively flat over recent months" the minutes of the October 2010 meeting of the board of the Reserve Bank of Australia note.Banks' managers may only just be resisting temptation to lift rates.Stephen Bartholomeusz in Business Spectator of "unconfirmed rumours circulating in banking circles that the RBA actually contacted the major banks seeking assurances that they would only pass on the RBA increase, if there were one, and not do anything beyond that. Supposedly, the banks declined to provide them."Banks may yet seek a chance to lift rates.Asked about rates and margins at a Trans-Tasman lunch in Melbourne yesterday, ANZ CEO Mike Smith repeated a recent statement that "obviously, something has to give".For now, banks must live with narrow spreads."The spread between lending rates and funding costs was below its peak in 2009 [and] remained well above its pre-crisis level," the RBA wrote in the October minutes.