What you’ll pay
Standard rates this morning
Westpac: 7.61% No change
Commonwealth: 7.56% No change
ANZ: 7.55% No change
NAB: 7.47% No change
Bank of Queensland: 7.36%
ME Bank: 6.74% (for union members)
Australia’s big four banks have snubbed their customers in the lead-up to Christmas. For the first time in more than two years not one of the big four has responded to a Reserve Bank rate cut on the day it was announced.
When the Bank last cut rates on Melbourne Cup day two of the big four - Westpac and the Commonwealth - proclaimed within minutes they would be passing on the cut in full.
Yesterday’s announcement of the second successive cut of 0.25 points in the Reserve Bank’s cash rate was followed by silence from each of the big four, with none apparently willing to be the first to reveal they would not pass on the cut in full.
The last time all four sat on their hands as the Reserve Bank moved - in April 2009 during the global financial crisis - three eventually passed on only 0.10 points of the 0.25 point cut and one passed on none.
An decision to pass on none of the cut this time would deny a household with a $300,000 mortgage a cut in repayments of $49 per month.
A decision to pass on only 0.10 points would deny such a household $29 per month.
An exasperated Treasurer Wayne Swan said yesterday many families and small businesses would be “very angry if there is not a full pass through of this rate cut by the banks in the system”...
“I have spent a lot of time putting in place more competition into our banking system over the past twelve months than we have seen in years. If people are unhappy with their financial institution they have the capacity to walk down the road,” he said.
Two smaller institutions yesterday passed on the cut in full. The Bank of Queensland cut its standard variable mortgage rate to 7.36 per cent.
Chief executive Stuart Grimshaw said passing on the full cut was “the right thing to do last month and it’s the right thing to do this month”.
“Our cost of funds continue to increase so pricing remains a balancing act, but with Christmas less than three weeks away we know our customers will appreciate the extra dollars,” he said.
Members Equity Bank also passed on the full 0.25 points, cutting its rate for union and industry super fund members to 6.74 per cent.
Ahead of the Reserve Bank’s decision Commonwealth Bank Chief Ralph Norris flagged the possibility of holding back future rate cuts saying “over the next two, three, four years, the cost of money is going to get much more expensive and I don't see any other choice than financial institutions internationally will pass on the additional costs”.
New anti price signalling laws introduced by Mr Swan to help ensure banks no longer "dud Australian families" make it difficult for banks to explain their thinking about rates after Reserve Bank board decisions.
ANZ chief Mike Smith hinted at this thinking last month saying “there is a credit crunch in Europe now, it is spreading to Asia and it will spread here too”.
The European debt crisis lies behind yesterday’s Reserve Bank board decision. The Bank believes the world economy is weakening and that mainland Europe will be fortunate if its economy merely records zero growth in 2012. Weaker global growth will inevitably flow through to Australia, further weakening Reserve Bank forecasts.
The cut took no account of the possibility of financial market turmoil flowing from a decision by a European nation to repudiate its debts or unilaterally abandon the euro. In the event of such a crisis the Reserve Bank board would hold an emergency meeting, possibly by phone, rather than waiting until the next scheduled meeting in February.
The Bank believes rates are now at or below normal, meaning there is no need to cut further in the absence of a new international downturn. If the big four banks do fully pass on the latest cut, mortgage and small business rates will be 0.20 points below their 15 year average.
Published in today's SMH and Age
. What banks do, and why they are changing what they do
. The cash rate is low, mortgage rates are not
. Reserve calls banks bluff