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Banks May Not Match RBA’s Interest Rate Cut

Banks have warned that home buyers could miss out completely on a pre-Christmas rate cut, amid a worsening economic situation in Europe and rising borrowing costs.

Senior government ministers are urging the big banks to pass on in full the 25 basis-point rate cut announced yesterday by the Reserve Bank, but the Australian Bankers’ Association said the banks were not obliged to do so. However rising borrowing costs and the medium-term economic outlook for the global economy could stay their hand.

At least two smaller banks have already passed on the cut, but banks are not required to match RBA rate moves in full and the RBA no longer determined the actual cost of money for banks in Australia.

There’s a strong expectation the banks will follow the Reserve Bank either on the way up or on the way down but there are times – and this is one of them – when the cost of money diverges from the Reserve Bank’s interest rates.

Treasurer Wayne Swan and Finance Minister Penny Wong today both urged the banks to consider consumers and pass on the pre-Christmas cut in full. They understand the banks are operating in a global environment and it’s a tough time. But the banks also have to understand the tough environment that their customers, families and small business face.

Tony Abbott believes the banks should be passing on rate cuts in full. That’s what happened under the former government, that’s what the current treasurer says should happen and the current treasurer should use his authority and try to ensure that it happens.

The Reserve Bank cut its cash rate by 25 basis points to 4.25 per cent yesterday, the second rate cut in as many months.