NAB, Westpac, CBA Give in to Pressure, Pass RBA Rate Cut in Full

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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 ( RBA ).

ANZ Bank made the same move a day ahead, but indicated it would no longer give in to such type of pressure in the future.

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 Chronican.

"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 cutting rates.

"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. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Commodities

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