Banks hurry to pass on latest cuts in full
Banks have rushed to pass on the official interest rate cut to their home loan customers in full, as they try to tempt debt-shy consumers into borrowing more.
Commonwealth, Westpac, NAB, Suncorp and Bank of Queensland all reduced their mortgage rates by 0.25 percentage points on Tuesday, hours after the cash rate was cut to a record low of 2.75 per cent.
ANZ will make its decision at its regular interest rate review on Friday.
The banks' haste to cut rates by the official move stands in stark contrast to their failure to pass on the 0.5 percentage points in official cuts late last year, blaming higher funding costs.
Since early this year, there has been a sharp fall in the cost of borrowing on global debt markets, and some analysts argue there is less competition for deposits, a key source of funding for banks.
Banks also hope that lower interest rates can reignite home lending, a critical source of profits. Housing credit is growing at its slowest annual pace since Reserve Bank records began in 1977, despite the central bank's attempts to stimulate activity.
Westpac's executive in charge of retail and business banking, Jason Yetton, said he hoped the cut in borrowing costs would provide a boost to consumer confidence, and help encourage residential lending.
"With headline mortgage rates now at their lowest level for three-and-a-half years, we know this reduction is the kind of incentive our customers are looking for to make the most of the opportunities available in the housing market," he said.
Banks have also faced growing scrutiny over their strong profit growth, with ANZ and Westpac last week reporting annual profit growth of 10 per cent or more, and rewarding shareholders with higher dividends.
However, NAB's group executive in charge of personal banking, Gavin Slater, said the decision was a response to customer needs.
"This decision was fundamentally about our customers and really we've had a track record of passing on benefits to our customers," he said.
NAB has offered the lowest standard variable mortgage rate of the big four for almost four years, although the gap between it and rivals has narrowed in the past year.
Despite the banks' move to pass on the official cut in full on this occasion, Westpac's Mr Yetton said there was still "fierce" competition among banks for deposits - and this was the main influence on their funding costs.
"Deposits have become increasingly important to us as we reduce our reliance on other sources of funding to support our lending. The price of deposits remains elevated," Mr Yetton said.
Banks' interest rates on deposit accounts remain under review.