RETIREES and savers with bank deposits stand to be surprise beneficiaries from any move by the big four banks not to pass on in full this week's 25 basis point cut in official interest rates to home mortgage holders.
As the banks continued their game of chicken last night, refusing to blink and reveal how much of the Reserve Bank's rate cut they would pass on to borrowers, analysts said one consequence of a reduced cut would be a transfer of wealth from mortgagees to retirees.
With offshore credit markets effectively shut due to the European debt crisis, home-grown deposits are becoming increasingly important to local banks as a source of funding. And to ensure access to the funds, banks will consider keeping some of the cut to borrowers to pay those with money to lend, analysts said.
"You're subsidising your grandparents' retirement," one analyst said. "The banks aren't making any more money on their spread.
"All that's happening is if you're a borrower and want to borrow money, you've go to pay the people who have money. And the people who have the money are the retirees and the people who don't are the first home owners. It's nothing more than an intergenerational transfer." Analysts argue that the money raised by the banks from withholding some of the rate cut will not be going to their bottom line but note that in using the money to offset the higher cost of funding it will protect their margins from contracting.
Another analyst said a deposit rate battle between the banks was on the cards, but noted that it might be relative given markets were expecting up to 125 basis points in rate cuts in the next year, meaning deposit rates would also tumble.
One analyst calculated that for every five basis points banks did not pass on to home owners from the rate cut, $400 million of the $1.2 trillion in mortgages in the banking system would be transferred from home owners via the banks to the providers of funds, increasingly deposit account holders.
Another calculated the five basis points that NAB did not pass on from the Melbourne Cup day rate cut were worth about $100 million to the bank.
Banks normally rush to cut interest rates on deposit accounts after a cut to official rates, but analysts expect to see a game of cat and mouse as they assess the value in keeping deposit rates higher.
Shane Oliver from AMP Capital called chances of the big banks passing on the full 25 basis points "a big if".
Australian Bankers Association chief executive Steven Munchenberg said: "It's not going to be a surprise to the RBA should one or more banks decide not to pass along the full rate cut. The RBA would have factored that in to their decision."