Published: Thu, June 06, 2019
Markets | By Otis Pena

Banks pocket $109 million by delaying rate cut

Banks pocket $109 million by delaying rate cut

EARLIER @ 3.00PM: ANZ Bank has become the first of the banks to pass on the RBA's cut to interest rates, but not in full.

Today's rate cut comes as a relief to borrowers as equated monthly instalments (EMI) for home loans, vehicle loans and other loans are set to come down.

While it had been loathe to cut rates in previous months for fear of further ratcheting up risky household debt, the bank felt it had to move given inflation has been marooned under its 2-to-3 per cent target band for the best part of three years and unemployment is starting rise.

THE Reserve Bank of Australia (RBA) has cut the cash rate to a new record low.

RBI had reduced its repo rate - the rate at which it lends to banks - from 6.5 per cent to 6 per cent in two stages this year.

NAB said it would pass on the rate cuts from June 14 on all of its loans aside from its First Home Buyer special rate of 3.49 per annum announced last week.

The Reserve Bank lowered the cash rate to 1.25 per cent today, in an effort to keep the economy humming by helping more Australians find jobs while controlling inflation.

Treasurer Josh Frydenberg said this morning that banks must pass the cut on.

"It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target", he said.

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"I expect all banks to pass on the benefits of sustained reductions in funding costs", the treasurer said.

Mr Frydenberg will address the media at 3pm AEST.

"Here was an opportunity, post the royal commission, to do the right thing by your customers", he told ABC Radio National.

The decision to reduce the interest rate was unanimous.

"One of the biggest contributors to the continued market downturn in WA has been the excessively tight lending criteria that banks are insisting that home loan applications meet", chief executive Tanya Steinbeck said.

Any hope of returning rates to more "normal" pre-crisis levels have been quashed by the slow global recovery, trade disputes between China and the United States and domestic challenges.

However, it has not passed on the full 25 basis points as requested, instead cutting its variable home loan interest rates by 18 basis points.

"By not passing on the RBA rate cut in full ANZ and Westpac will collectively pocket $193 million in extra interest over the next 12 months", consumer advocate at Mozo, Tom Godfrey told Yahoo Finance.

Prior to Tuesday, just half the 12 RBA cuts since November 2011 were passed on in full - or within 0.01 percentage points of full - by the major banks.

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