Happy news for homeowners – three out of the big four Australian banks have passed on the full Reserve Bank rate cut announced yesterday, with the fourth likely to follow suit.
The RBA cut the official cash rate by 25 basis points to a historic low of 2.75 per cent. This is the first time the rate has been below 3% since the Reserve Bank began setting monetary policy in 1990, and is the lowest cash rate in Australia since 1960.
National Australia Bank was the first of the majors to pass on the full rate cut to customers, lowering its standard variable home loan rate to 6.13%, starting Monday. It will also be cutting its business lending rates by 25 points.
The Commonwealth Bank’s standard variable rate will drop to 6.15% from Monday onward, and Westpac’s standard variable rate will be lowered to 6.26% from May 20th. Westpac-owned St.George will also slash its standard variable rate by the full 25 points, to 6.24%.
ANZ has yet to respond to the RBA’s move, but is expected to announce its decision Friday. Spectators agree that it’s likely the bank will follow suit and match the response of the other banks in order to remain competitive.
Some of the smaller financial institutions, including Bank of Queensland, uBank, ING Direct and Suncorp, have also passed on the full cut to borrowers.
It’s the first time in 17 months banks have lowered interest rates in line with the RBA’s decision, and it’s a move that has been welcomed across the board. Treasurer Wayne Swan said the rate cut was ‘thoroughly deserved’ by Australian households and families. The 25 basis point reduction will, for example, save Australians financing their home with NAB around $62.50 a month in interest on the average $300,000 home loan.
All of the big four banks held back delivering full interest rate cuts throughout 2012, citing higher funding costs and uncertain global banking conditions. Despite better economic conditions all-round, the banks are still arguing that times are tough, with credit growth at record lows and competition for deposits intense due to high prices. However, with the banks expected to post record profits this year and borrowing costs for banks undoubtedly improving, the big four are under increased pressure to match the RBA and reduce interest rates.
Prior to the Reserve Bank’s announcement, there had been speculation as to whether the cash rate would be reduced. The RBA shadow board voted for rates to remain steady and advised the Bank to wait until next week’s budget, in order to better assess the economic outlook for the near future. However, RBA governor Glenn Stevens announced in a statement that the bank’s Board:
“…has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today’s meeting the Board decided to use some of that scope. It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.”
Overall, it seems that along with low inflation, the combination of rising unemployment, a strong Australian dollar, lowered demand for credit and an all-round lacklustre economy – at least, outside of the mining sector – probably pushed the Reserve Bank’s decision.
Economists believe the cash rate is likely to remain steady over the next few months. Hopefully, the rate cut will stimulate a boost in economic activity, and provide a little relief for both current and prospective homeowners.
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