Aiming to inject much-needed stimulus into the Australian economy, the Reserve Bank has lowered the official rate by 25 basis points to a new record low of 1.5 per cent. But Australia's big four banks have defied the rate cut, only passing on barely half of the official benchmark cash rate to their home mortgage and business borrowers.
"Given very subdued growth in labour costs and very low-cost pressures elsewhere in the world, this is expected to remain the case for some time," said RBA governor Glenn Stevens. "The board judged prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy."
But the major banks only cut their mortgages by only between 10 and 14 basis points. Commonwealth Bank was the first to move, passing on 13 basis points to homeowners. The National Australia Bank cut only 10 basis points. Westpac and ANZ passed on 14 and 12 basis points, respectively.
Passing on the full rate cut would have given home buyers a benefit of as much as $3.7 billion. Instead, the banks pledged to increase a range of term deposit rates for lenders by as much as 55 basis points, pushing one-year deals as high as three per cent.
"Given increased funding costs and capital requirements, today's announced changes seek to balance the needs of customers and shareholders," said Matt Comyn, head of Commonwealth Bank's retail banking division.
According to Australian Chamber of Commerce and Industry chief executive James Pearson, the rate cut left the Reserve Bank with little room to move if the economy faced a downturn.
"I'd urge the banks to pass on as much of the rate cut as they can afford to small business; because that will stimulate investment and that leads to the creation of more jobs," he said.
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