| 06.12,11. 11:00 PM |
Scrooge Aussie banks are sitting on rate cuts
December 06, 2011
HOMEOWNERS and businesses will anxiously await action from the nation's big banks after they refused to respond immediately to the Reserve Bank's 0.25 per cent cut to interest rates.
A pall of silence fell over Westpac, ANZ, NAB and the Commonwealth yesterday after the RBA board used its last meeting of the year to deliver what the board intended to be a Christmas bonus to shopkeepers and mortgagees.
Retail chiefs said the fate of their Christmas was now largely in the hands of the banks and whether they handed over the full cut.
If passed along in full, the cut would save the average mortgage holder with a $300,000, 25-year mortgage nearly $47 a month. From the big four banks' perspective, every basis point they hold back is worth $60 million.
Myer boss Bernie Brookes told The Daily Telegraph passing the rate cut on to families would significantly bolster the retailer's sales heading into the critical Christmas trading period.
"This decision will be good for retailers with consumers no doubt appreciating the relief," he said.
David Jones chief executive Paul Zahra welcomed the rate decision, suggesting consumers needed to feel some stability in their lives.
"Over the past six months we have experienced a marked deterioration in consumer sentiment and this has been reflected in our trading performance," Mr Zahra said.
RBA cuts interest rates by 0.25 per cent
"People need to feel that some stability is being restored and that their wealth is not being eroded. While an interest rate cut in isolation will not completely restore consumer confidence it does go some way in the lead up to Christmas."
Federal Treasurer Wayne Swan last night welcomed the Reserve Bank's decision, adding there was "no excuse" for the banks to fail to pass on any rate cut in full.
"Today's decision to cut interest rates again will provide Christmas cheer to families and small businesses which is particularly welcome around Christmas," Mr Swan said.
The banks' inaction came despite predictions last night that another global financial downturn could drive official rates down by more than one percentage point to below 3 per cent by the middle of next year.
UBS interest rate strategist Matthew Johnson said the futures market was now betting on 1.25 percentage points of interest rate cuts by the RBA by June 2012 - worth a whopping $235 a month to the typical Sydney mortgage-holder. That would take the cash rate to 3 per cent by the middle of the year.
Gillard supports rate cut call
"It does seem a little extreme but the futures market is a better predictor than most people," Mr Johnson said.
"All the experts said it would be up higher a little while ago (a few months ago), and the market ignored them."
Former Reserve Bank board member and owner of Premier Investments Solomon Lew said the retail industry desperately needed support amid tough economic times.
"The retail industry is not only our largest employer, providing 1.2 million Australians with jobs, but it is also the engine for driving economic activity across the nation," Mr Lew said.
"Cuts are needed to benefit not only the consumer but also the broader economy."
Bank of Queensland and Credit Union Members Equity were yesterday the only institutions to respond to the interest rate cut.
BOQ took just six minutes to announce it would pass the rate cut on in full to both home and business borrowers, taking its standard variable rate home loans by 25 basis points to 7.36 per cent.
Chief executive Stuart Grimshaw said passing on the full rate cut was the right thing to do by customers.
"Pricing remains a balancing act of shareholder and customer interests," he said.
"But with Christmas less than three weeks away, we know our customers will appreciate the extra dollars in their wallet."