St George opens the gap

Unlike its Big Four banking rivals - who will match the Reserve Bank's latest rate cut with across-the-board 0.25 percentage point reductions to take effect from tomorrow to next Monday - St George has delayed its 0.3 percentage point cut until September 29 in order to take advantage of an anticipated fall in short-term money market interest rates.

The cost for the banks of borrowing from the 90-day bank bill market has fallen in recent weeks with the increasing prospect of two RBA-sanctioned reductions between now and Christmas.

But the full effect of yesterday's in the official cash rate to 7 per cent will take some time to be felt - a point confirmed by St George as it explained its decision to delay its cut.

"In order to provide customers with a larger reduction in their interest rate, we have decided to wait a few weeks for the RBA decision to fully flow through to our overall funding costs," Les Matheson, the head of St George's retail banking division, said.

The immediate effect will be a 0.3 percentage point gap between St George's standard variable mortgage rate of 9.67 per cent and that of its nearest rival, ANZ, for a long period.

As had been forecast in the past fortnight, ANZ cut its main home loan product in line with the RBA's move, as did National Australia Bank and Westpac. Both NAB and Westpac offer a standard variable rate one basis point lower than their Melbourne competitor, at 9.36 per cent.

The Commonwealth's main rate sits beneath all three at 9.33 per cent after it followed suit with a cut of 0.25 percentage points. Matching reductions were announced by Suncorp, Bendigo Bank, HSBC and the Westpac-owned RAMS Home Loans - which now has one of the lowest rates at 9.29 per cent.

In a twist to yesterday's debate, the St George-owned Bank of South Australia didn't follow its parent's lead: it announced a 25 basis point cut to 9.42 per cent with effect from Monday.

The four majors moved as expected after the Federal Government and the RBA applied immense political pressure in recent weeks by arguing the banks had no excuse to withhold any part of the sanctioned cut from their tens of millions of customers since financing costs had fallen from their peak in March.

Their arguments were fuelled by reference to home loan rate rises of 50 to 60 basis points since January over and above RBA increases, although the RBA governor, Glenn Stevens, acknowledged yesterday that these had helped to do part of the Reserve's job of reining in inflation.

"As a result of increases in the cash rate last year and early this year, additional rises in market interest rates, and tougher credit standards, financial conditions have been quite tight," he said.

But with higher long-term financing pressures to face, the banks are showing no signs that they intend to lower those top-up rates. "While the average cost of this funding continues to increase, it means we are not yet out of the woods," said Ahmed Fahour, the head of NAB's Australian banking operations.

Inflation under control - page 26