ANZ and Westpac failed to pass on the full 0.25% cut from the Reserve Bank to its mortgage customers and immediately faced pressure from the central bank.
Governor Philip Lowe told an RBA business dinner in Sydney on Tuesday night that banks that failed to pass on all of its official rate cut risked undermining the economy.
Dr. Lowe said there were no excuses for those banks that did not lower their standard mortgage rates by the full amount.
Westpac announced a 0.20 percentage point cut to its variable home loan rates for owner-occupiers, and a 0.35 percentage point reduction for investors with interest-only loans.
The ANZ had tried to claim the reason for its decision to pass on only 0.18% of the 0.25% cut was due to a number of factors one of which was higher funding costs.
The ANZ’s Australia retail group executive Mark Hand said in a statement
“While we recognise some home loan customers will be disappointed, in making this decision we have needed to balance the increased cost in managing our business with our desire to provide customers with competitive lending and deposit rates.”
Dr. Lowe rejected that reasoning, saying while lending costs for banks had gone up last year, they had fallen by even more in recent months and now sat at 2017 levels.
“Not only have these costs declined as a result of the change in monetary policy, but they have also declined because of movements in market-based spreads,“ Dr. Lowe said in his remarks last night.
“Last year, these spreads increased and most lenders responded by increasing their standard variable rates by around 15 basis points. Over recent months, these spreads have reversed all the increase that occurred last year and returned to their 2017 levels.
“The result is that there has been a substantial reduction – at both the short end and the long end – in the cost of banks raising funds in wholesale markets.
“Average rates on retail deposits have also come down. This means that the lower cash rate should be fully passed through into standard variable mortgage rates.
“Full pass-through would also mean that the economy receives the full benefit of today’s policy decision,“ he said.
Other banks passed on the 0.25% cut in full.
And judging by the post-meeting statement from Governor Lowe after yesterday’s RBA rate cut and his comments last night, more rate cuts are ahead.
He told his Sydney audience last night that while the economy was in “reasonable” shape, there was plenty of spare capacity in the economy, which meant the unemployment rate could fall much lower than its current level of 5.2 percent.
“The board has not yet made a decision, but it is not unreasonable to expect a lower cash rate,” he said.
“Our latest set of forecasts were prepared on the assumption that the cash rate would follow the path implied by market pricing, which was for the cash rate to be around 1 percent by the end of the year,” he said.
But he again suggested that more could be done by others – governments through fiscal policy.
“As we ease monetary policy, it is in the country’s interest that other policy options are considered too,” Dr. Lowe said.