Banks unlikely to pass on full rate cut

Adam Smith 2 August 2016

RBAPersonalLoanBorrowers have been warned not to expect a full cut from their banks should the RBA trim the official cash rate today.

The Reserve Bank of Australia is widely expected to cut the official cash rate to 1.50% when it meets today, with 56% of the experts polled on’s monthly Reserve Bank Survey predicting a cut. But analysts have warned borrowers not to expect their lenders to pass the cut on in full, the Sydney Morning Herald has reported.

Morningstar head of Australian banking research David Ellis told the SMH it was likely lenders would withhold part of any rate cut dealt by the RBA today.

"If you'd asked me a month ago I would have said there's no way the banks would have withheld any of the 25 basis points. With the lead-up to the election and the political and public scrutiny, and the potential for a royal commission, I thought that banks would be very much aware of the general feeling and attitude towards them,” Ellis said.

But Ellis argued that in the wake of the Federal Election and with the unlikelihood of a royal commission, banks would be emboldened to protect their margins, which have been under pressure from increased competition and higher capital requirements.

"This time around I think they'll withhold some small amount, somewhere between five and 10 basis points," Ellis said.

Ellis predicted Commonwealth Bank and Westpac could withhold the largest portion of any RBA rate cut, as the two banks have the highest home loan market share, the SMH reported.

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