The three other large Australian banks - National Australia
Bank, Westpac and Commonwealth Bank - gave in to pressure and
announced Friday that it will pass on in full to customers the 25
basis points cut in overnight cash rate approved on Tuesday by
the Reserve Bank of Australia (
ANZ Bank made the same move a day ahead, but indicated it
would no longer give in to such type of pressure in the
The four banks were estimated to have earned an extra $5.6
million each day that they did not pass in full the rate cut to
customers. Reports indicated that Treasurer Wayne Swan called
some bank executive to question their claim that high borrowing
cost was the reason behind the lenders' hesitation to pass in
full the rate reduction.
However, ANZ denied it made the decision in response to
alleged political threats from Mr Swan.
RBA Governor Glenn Stevens said that despite the decision by
the four banks, there was a growing gap between home loan rates
and the RBA's cash rate which prompted the central bank to cut
rate further to correct the situation.
"I've seen this countless times, and it's usually ignored,
but, yes, the spread between the cash rate and major home loan
rates has risen by something like 100 basis points since about
2007," The Canberra Times quoted Mr Steven's Thursday speech at
the University of Sydney.
"For that reason, the cash rate is roughly lower than it would
have been otherwise, to offset that.... We have broadly offset
that change in the margin by setting our instrument
appropriately," he added.
Although the three banks followed ANZ's lead in giving in to
the RBA's pressure, NAB, Westpac and CBA did not state if it
would also set its own schedule for rate reviews independent of
the central bank's decision.
ANZ Chief Executive Philip Chronican announced on Thursday
that the bank would make rate decisions every second Friday of
the month for the benefit of consumers and to give it more room
for flexibility in fixing its rates.
"There's a fairly tenuous link between the Reserve Bank cash
rate and the cost of funds of a variable rate mortgage, and yet
we're all stuck in the same routing of waiting for an RBA cash
rate move before we move," The Sydney Morning Herald quoted Mr
"We've all said it's wrong, we've all said it's a next that
needs to be broken, and we just thought it was about time
somebody did something about it," he said.
Steve Munchenberg, chief executive of the Australian Bankers'
Association, backed ANZ's stand as he warned that Europe's debt
crisis could result in cost of funding rising while the RBA is
"I can still foresee a situation where regardless of community
and political pressure, the banks won't be able to follow the
RBA," Mr Munchenberg said in a statement.