Big banks cut rates after RBA shock

WESTPAC was the first bank to lower home loan rates today, after the RBA cut the official rate by a huge 1 percentage point.

Westpac cuts rates, big banks follow

AUSTRALIA'S big banks have moved to cut interest rates on home loans, although all have declined to pass on in full the RBA's shock one percentage point cut, with each of the big four favouring 80 basis point reductions.

While Westpac was first off the block, NAB, ANZ and Commonwealth all followed suit - although none passed on the full rate cut, each opting for 80 basis point reductions.

Westpac's rate cut will be effective from October 13, the bank said. The new variable rate will be 8.56 per cent.

CBA's rate cut will be effective from October 13, reducing its basic variable rate to 8.02 per cent.

ANZ Bank reduced its standard variable home loan rate by 80 basis points to 8.57 per cent, while NAB's 80 basis point cut takes its home loan rate to 8.56 per cent, effective October 20.

"Westpac will continue to monitor the external environment, and our cost of funding position, and will look to pass on further interest rate reductions where possible," Westpac's head of retail and business banking Peter Hanlon said.

"Since the beginning of September this year, term funding costs have increased to the highest levels seen since this crisis began over 12 months ago."

Commonwealth said while it wasn't cutting rates as much as the RBA reduction, "we do expect global financial markets to normalise over time and once that does occur we will be able to reduce rates by more than the RBA adjustments".

"Our customers can also expect out-of-cycle interest rate reductions."

Westpac said about 50 per cent of the bank's lending was funded with deposits, with the remaining 50 per cent of funding coming from short and long term borrowing in Australia and overseas.

The bank said the cost of its funding base had increased materially over the past year, and most notably in the last few weeks.

Aussie Home Loans will cut its standard variable home loan rate by 75 basis points.