Who has been naughty and nice following the RBA cash rate cuts?

Following the July announcement from the RBA that it was cutting the cash rate to a historic low of 1.00 per cent, how did lenders react to the move by way of their own interest rates?

Macquarie passed on the RBA’s interest rates across its fixed-rate home loans (investor and owner-occupier alike) by up to 40 basis points, exceeding the savings passed on by most of the four big banks. This announcement includes both principal/interest and interest-only loans.

Changes to Macquarie’s Basic Fixed Investment Home Loan are as follows: two and three-year fixed ‘principal and interest’ rates have been reduced from 4.09 per cent to 3.49 per cent, while two and three-year fixed ‘interest-only’ rates have been cut from 4.09 per cent to 3.69 per cent.

Similar cuts were passed on to Macquarie’s Basic Fixed Owner Occupier Home Loan. Two and three-year ‘principal and interest’ rates were reduced from 4.19 per cent to 3.59 per cent, while two and three-year ‘interest-only’ rates were reduced from 4.49 per cent to 3.89 per cent.

Following the announcement of the cash rate cut by the RBA at the start of the month, the big four banks were heavily criticised for not fully passing on this cut to consumers. Facing significant pressure in June by Treasurer Josh Frydenberg, ANZ was the only one of the big four to acquiesce and pass on the full 25 per cent rate cut. On top of the fact that none of the big four banks have passed on the full .5 per cent cut from June and July, only days after the RBA cash rate cut both ANZ and National Australia Bank cut interest rates to their saver accounts.

Financial research firm Canstar has noted that ANZ halved its online saver base interest rate to 0.15 per cent, while keeping its introductory rate on the account at 1.8 per cent. It has also cut .25 percentage points from the bonus rate of its progress saver account, to 1.95 per cent.

Commbank announced that it would be passing on a cut of 19 basis points to principal and interest loans and 25 basis points to interest-only borrowers. They also announced that these cuts would be passed on from the 23 July, nearly two weeks after ANZ officially passed on its cuts.

Westpac announced that it would pass on cuts of 20 basis points to owner-occupier loans and 30 basis points for investors with interest-only loans. The bank attempted to point to why it was not passing on the RBA’s cash rate cut in full, noting that its Standard Variable Rate (SVR) was the lowest it had been in 45 years for owner-occupier loans paying principal and interest loans.

With it suggested that the big four banks have collectively pocketed $3.8 billion since 2016 by delaying or refusing to pass on cash rates to consumers in full, there is significant pressure on the big four and criticism towards attempts like Westpac’s to point to the historical nature of their partial rate cuts.

What Westpac does do in pointing towards the historic low of its SVR is to highlight the delicate position the economy finds itself in, influenced by a range of factors, including international trade tensions.

There are predictions amongst economists that the June-quarter consumer price index report, due at the end of July, will reveal a continued fall in the rate of inflation. If so, this would mark fourteen consecutive quarters that the inflation rate has failed to meet the RBA’s inflation target band and would be a strong indicator towards more cuts to the cash rate.

As a consequence of the RBA’s increasing desperation and resignation towards future cuts, those considering taking on a fixed-rate mortgage should be aware of possible (near) future decreases to the cash rate, despite it sitting at a historic low.

Martin Lakos, Division Director at Macquarie Wealth Management, stated early in July that “notwithstanding a likely pause by the RBA to see if recent cuts gain traction, we see official interest rates going as low as one half of one per cent by the end of 2021.” This could be interpreted as a conservative estimate of future cuts, considering the recent dramatic cut of .5 per cent over only two months.

With customer satisfaction for the big four banks sitting nearly 20 per cent lower than for the highest performer, ING,  the speed and extent to which the big four banks pass on any future cuts to the cash rate by the RBA will indicate their strategy for addressing falling consumer confidence in their products.

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