Banks may not move quickly on next RBA cut

08_Banks may not move quickly on next RBA cut

By Stuart Condie
(Australian Associated Press)

The big banks have been quick to follow the Reserve Bank’s lead and deliver a rate cut for mortgage holders, but don’t expect such swift action if there’s another cut in 2016.

Three of the four big banks will pass on the RBA’s 25 basis point rate cut in full to owner-occupier and investor variable rate loans, while ANZ opted for a 19 basis point cut.

ANZ highlighted rising wholesale funding costs in its announcement of the smaller cut, a justification that could become familiar if the central bank delivers the second rate cut tipped by many analysts.

The banks’ haste in cutting rates could be linked to the Labor opposition’s threat to launch a Royal Commission into the industry if it wins this year’s federal election, IG markets analyst Angus Nicholson said.

“If the next rate cut comes after the LNP winning the election, which most markets are pricing for at the moment, then perhaps there might be less of an incentive for them to pass on the full cut,” he said.

“It would help the banks if they were allowed to keep more of the rate cut.”

Out-of-cycle rate hikes by Commonwealth Bank, National Australia Bank, Westpac and ANZ in October increased the gap between the RBA cash rate and the lenders’ average standard variable rates, to almost four per cent.

The banks, which made a combined $30 billion cash profit in 2015, said that move was necessary in the wake of tougher capital requirements and increased funding costs.

With ANZ cutting its dividend this week after its half year profit slumped to a six year low, and Westpac reporting slower profit growth, pocketing some of the next RBA cut could ease pressure on margins.

“While we’ve absorbed this for some time and taken steps to reduce costs in our own business, higher funding costs mean we are only in a position to pass on a portion of the reduction in the cash rate to our customers,” ANZ group executive Fred Ohlsson said as the bank announced its response to the RBA’s latest move.

The central bank said the cash rate cut was aimed at pushing the nation’s sluggish inflation rate into its two to three per cent target band.

ANZ senior economist David Cannington is among those tipping another rate cut from the RBA “in the near term”, with the timing likely to become clearer after the central bank issues its statement on monetary policy on Friday.

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