Big four defy the RBA on rate cuts

Australia’s largest banks are refusing to pass on RBA governor Philip Lowe’s emergency cash rate cut, leaving thousands of families without relief on mortgage repayments.

ANZ, Westpac, NAB and Commonwealth Bank on Wednesday said they would not change the interest rate on their popular standard variable mortgage products . Picture: AAP Image

The country’s largest banks are refusing to pass on the emergency cash rate cut, defying Reserve Bank governor Philip Lowe and leaving thousands of families without the relief of lower mortgage repayments.

ANZ, Westpac, NAB and Commonwealth Bank on Wednesday said they would not change the interest rate on their popular standard variable mortgage products after the RBA cut the official cash rate to 0.1 per cent in a bid to drive economic activity, lower unemployment and ­rekindle inflation.

Labor Treasury spokesman Jim Chalmers said it was “clear that many households and borrowers desperately need the banks to pass through the RBA’s latest interest rate cut”.

Lenders now have access to more cheap money, especially if they lend to small and medium enterprises, through the RBA’s term funding facility, which has been boosted to $200bn.

The banks will cut fixed home loan and business lending rates, following statements from Dr Lowe and Treasurer Josh Frydenberg about the need for business investment to drive the recovery.

On Tuesday, Dr Lowe said he “would expect and hope” the record-low cash rate was passed on to all borrowers. But he also told customers to be more active in dealing with lenders, given the banks are now offering lower rates to those who call and negotiate, or take their business to another loan provider.

“The best outcome would be for standard variable rates to be lower,” Dr Lowe said. “But if that doesn’t happen, I am confident there will be pass-through occurring through people negotiating switching … I would encourage everybody to go and ask their bank for a better deal … and if they don’t give it to you, switch to a bank that will.”

But the major banks fear cutting mortgage rates will encourage savers to withdraw their deposits and stash their cash at home. Instead, they moved to cut pricing on fixed-rate mortgages and business loans.

Former ANZ chief economist Warren Hogan said the banks were trying to protect their revenue from deposits, but that the historic nature of the rate cut provided extra scope for the new rates to be applied in different ways. “There is still room for fixed mortgage rates to come down even further due to competition … the banks have flexibility on this,” he said. “The banks have various lending and deposit interests and they have room to be quite discriminatory on how they apply cuts.”

He also said that once savers approached a “zero interest ­return, you will see customers holding money in cash. All around the world you are seeing people hold high-value banknotes, stuffing the money under the mattress, as it were.”

Leading independent economist Saul Eslake also said the banks were trying to protect revenue received from deposit customers. More broadly, the bigger benefit was not the rate cut per se “but having the assurance from the RBA that rates will not rise for another three years”.

NAB cut its one-year fixed mortgage rate by 10 basis points to 2.19 per annum, while its two-year fixed home loan was reduced by the same amount to 2.09 per cent. The three-year fixed mortgage fell 20 basis points to 2.09 per cent.

NAB personal banking executive Rachel Slade said: “These changes are designed to provide certainty to our customers with our lowest fixed rates ever, boost confidence and support credit recovery.”

Westpac consumer division acting chief executive Richard Burton said on Wednesday new small business customers on the government’s coronavirus SME Guarantee Loan Scheme could receive a fixed interest rate of 2.38 per cent for three to five years and a variable rate of 3.09 per cent on new fully ­secured loans — a 0.29 per cent reduction.

“These changes mean that customers will be able to access even lower interest rates on our home loan and small business loans,” he said.

“However, we are in an extraordinary period with the official cash rate at an historical low and unconventional monetary policy measures in place. It is critical we carefully manage interest rate changes, while continuing to do our part in supporting customers and the economy.”

CBA also announced reductions on fixed-rate home loans and 3.99 per cent unsecured business loan rates through the government’s SME loan guarantee scheme. The bank’s retail banking services group executive, Angus Sullivan, said it was one of CBA’s lowest ever interest rates. “We have reflected this (RBA cut) in our interest rate settings, offering customers our lowest ever fixed rate — 1.99 per cent fixed for four years — providing customers who fix some or all of their home loan with certainty,” he said.

ANZ also matched its peers on Wednesday by cutting fixed home loan and business lending rates while keeping its standard variable mortgage rates steady.

Additional reporting:

JOYCE MOULLAKIS