Banks pass on only three in four rate rises to savers: RBA

The big banks have been quick to pass on the dozen rate hikes to mortgage holders, but have once again dudded savers.

Reserve Bank of Australia assistant governor Christopher Kent. Picture: Bloomberg

The big banks have passed on only three-quarters of the Reserve Bank’s four percentage-point jump in interest rates to savers over the past year, despite passing on every hike in full to mortgage holders.

As CBA chairman Paul O’Malley at the bank’s annual general meeting defended last financial year’s $10bn profit, RBA assistant governor Christopher Kent said home loan repayments had reached a record 10 per cent of total household disposable income and would continue to climb over coming months as hundreds of thousands of homeowners rolled off super-cheap fixed-rate loans.

“This is above estimates of the peak reached in 2008 when the cash rate was 7.25 per cent (versus 4.1 per cent now). And for those households with a large mortgage, required payments are a much higher share of their income,” Dr Kent said.

While borrowers are feeling the pinch, Australians with savings, particularly older, debt-free households, have enjoyed a welcome boost to interest income.

Mr O’Malley in his speech said “banks have also passed on much – though not all – of the rise in the cash rate to depositors”.

“Since May 2022, Australian banks have passed on about 75 per cent of the increase in the cash rate to deposits, which is in line with past phases of rising interest rates,” he said.

“Households that have savings are now earning more interest and may spend more in response. To some degree, this counterbalances the households that are spending less. However, the stock of household debt in Australia is larger than the stock of household savings.

“Since rates have been rising, the contribution of interest received by those with savings to the growth of disposable income has been noticeably smaller than the extra interest payments made by those with debt.”

Speaking at a business conference in Sydney, Dr Kent said the dozen rate hikes delivered from May last year were increasingly weighing on inflation as the jump in repayments dragged on spending. Recent RBA research revealed that as many as one in eight mortgage holders were struggling to pay their bills.

“The effect of slower demand growth on inflation is now building. For example, we are hearing in liaison that a range of retailers are discounting prices in the face of weak consumer spending,” he said.

“Meanwhile, the board is paying close attention to economic developments here and overseas, and some further tightening of monetary policy may be required to ensure that inflation, which is still too high, returns to target in a reasonable time frame.”

Jarden chief economist Carlos Cacho said he expected a final rate rise on Melbourne Cup day.

Mr Cacho said the economy had so far proved relatively resilient to the most aggressive monetary policy tightening in a generation, while September quarter inflation data later this month could show services inflation remained high and stickier than the RBA had hoped.

Mr Cacho said “the consumer outlook is challenging, and at the individual level, especially for those with mortgages, it’s incredibly challenging”.