Banks tipped to play scrooge if Reserve Bank of Australia cuts rates

A STRONGLY tipped cash rate fall next week could leave borrowers no better off with expectations lenders will not give them a break.

A STRONGLY tipped cash rate fall next week could leave borrowers no better off with expectations lenders will play scrooge.

The nation’s extremely weak inflation figures are tipped to push Reserve Bank of Australia governor Glenn Stevens to cut the cash rate to 1.75 per cent — the lowest-ever level — but experts are warning borrowers they may not have the cut passed on in full.

AMP chief economist Dr Shane Oliver expects the cash rate to drop by 25 basis points on Tuesday but said borrowers should brace themselves for little if any reduction to their home loan interest rates.

“I think the Reserve will cut on Tuesday, if they wait another month it’s right in the middle of an election,’’ he said.

“They’ll cut by 25 basis points but as to whether the banks pass it on I think they will pass on some of it but not necessarily all of it, I think they will pass on a 15 basis point cut.”

The banks have argued their cost of funding has risen with increased capital requirements imposed on them by the financial regulator, the Australian Securities and Investments Commission.

Inflation figures released this week showed the year-on-year rate is 1.55 per cent and is well below the central bank’s target band of between two and three per cent.

HSBC chief economist Paul Bloxham is also forecasting a cash rate cut on Tuesday — the first drop in 12 months — as well as another cut in the coming months.

“Given the downside slide to inflation one rate cut probably won’t be enough,’’ he said.

“We have to follow up with a further cut to interest rates so our view is the cash rate will be down by 1.5 per cent.”

Data from financial comparison website iSelect shows on a $300,000 30-year home loan the average standard variable rate is 4.57 per cent and on a three-fixed loan it’s 4.28 per cent.

ISelect site’s spokeswoman Laura Crowden said if a cut does occur borrowers shouldn’t expect to see their home loan rate slashed.

“Over the past year we have started to see more banks and lenders moving their rates independently of official RBA movements,’’ she said.

“It’s likely that some banks and lenders will choose to pass the cut on while others won’t.

“This should prompt mortgage holders to shop around and compare their current loan with other available offers.”

Earlier this month the Bank of Queensland made an out-of-cycle interest rate hike to their variable home loan rates.

Originally published as Banks tipped to play scrooge if Reserve Bank of Australia cuts rates