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.
"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 got 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 by 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 was on the cards, noting that it may be relative given markets are expecting up to 125 basis points in rate cuts over the next year, meaning deposit rates would also tumble.
One analyst calculated that for every five basis points banks don't pass on to home owners from the Reserve Bank rate cut, the $1.2 trillion in mortgages in the banking system will see as much as $400 million transferred from home owners through the banks to the providers of funds, increasingly deposit account holders.
Another calculated the five basis points NAB did not pass on from the previous 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 similar game of cat and mouse as they assess the value in keeping deposit rates higher.
Shane Oliver from AMP Capital called chances of the banks passing on the full 25 basis points "a big if".
The Australian Banker's 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 into their decision."