Australia Banks not passing full RBA rate cuts to consumers

To quote Albert Einstein: Insanity is doing the same thing over and over again and expecting different results. This is exactly what Anlaysts are predicting RBA’s future action with regards to rate cuts – Home owners not enjoying rates cuts due to banks withholding profits? Lets do it again!

Perhaps RBA might want to rethink it’s rate cutting strategy. Housing is an issue in Australia, but perhaps not that critical at the moment; they have other bigger fishes to fry such as slowing mining industry and the spill over of Europe/China economic crisis.

The Reserve Bank of Australia probably will lower its cash rate to a record-low 2.75 percent by February, from the current 3.25 percent, interest-rate swap prices show. The nation’s four biggest lenders, accounting for 85 percent of the bank mortgage market, have withheld about a quarter of the RBA’s 1.5 percentage points of cuts since November.

Australia’s central bank is set to extend the developed world’s steepest interest rate cuts after banks failed to match its reductions, blunting their impact.

The efforts of RBA Governor Glenn Stevens to stimulate the economy with lower borrowing costs are also being hampered as Australians boost savings to a record and repay debt instead of increasing spending. Recent economic releases have suggested lower borrowing costs are needed as newly built homes fell to the lowest on record in August and mortgage lending is growing at the weakest pace since records began in 1977.

“The fall in the cash rate has overstated the degree to which monetary policy has eased,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney. “The easing we’ve seen so far has just involved the Reserve Bank taking its foot off the brake, it hasn’t actually put its foot on the accelerator until perhaps now.”

National Australia Bank Ltd. (NAB) and Commonwealth Bank of Australia (CBA) passed on 20 basis points of the RBA’s latest 25 basis point cut last week. Westpac Banking Corp. (WBC) cut by 18 basis points, while Australia & New Zealand Banking Group Ltd. (ANZ) is scheduled to respond on Oct. 12. A basis point is 0.01 percentage point.

Via – Bloomberg

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