The Reserve Bank Governor and Australian Treasurer have urged Australian mortgage-holders to “shop around” after admonishing banks for not passing on Tuesday’s full rate cut.
Speaking at an RBA Board Dinner on Tuesday night, Governor Philip Lowe broke with usual practice by calling on Australia’s banks to pass on the whole of the central bank’s quarter of a percentage point cash rate cut to their mortgage customers.
“All I can do is encourage people to shop around. If your bank has not passed this through, then I encourage you to go and look for a better deal somewhere else,” he said.
The Reserve Bank hours earlier cut the official cash rate to an all-time low of 1.25 per cent, in what is a troubling sign for the economy.
While Commonwealth Bank and NAB said they would pass the entire 25 basis point reduction, ANZ said it would only reduce its variable mortgage rates by 18 basis points.
Westpac will reduce most variable home loan rates, including those for owner-occupier mortgages, by 20 basis points, although interest-only investors will get a reduction of 35 basis points.
Treasurer Josh Frydenberg said the banks owed customers an explanation after keeping some of the rate cut for themselves, despite their own funding costs recently falling from high levels.
“I think their customers have been let down by this decision,” he told Nine’s Today program on Wednesday.
“We know that people can move between banks and seek a better deal as well, and I’d encourage them to always look for the best possible deal for themselves and for their families and their businesses.”
Mr Frydenberg said he could not force the banks’ hand but has reminded them of the recent damning financial services royal commission.
“Here was an opportunity, post the royal commission, to do the right thing by your customers,” he told ABC’s Radio National.
Shadow treasurer Jim Chalmers said Westpac and ANZ’s choice not to do the same was “disgraceful”, as the nation grappled with a slowing economy.
“We can’t afford to have banks pocket some of this interest rate relief,” he told ABC News on Wednesday.
The RBA’s Mr Lowe said banks had benefited from a substantial reduction in the cost of raising funds on wholesale markets.
“This means that the lower cash rate should be fully passed through into standard variable mortgage rates,” he said.
“Full pass-through would also mean that the economy receives the full benefit of today’s policy decision.”
ANZ retail boss Mark Hand acknowledged that many would have hoped to benefit from the full cut, but said the bank also had other considerations.
“While we recognise some home loan customers will be disappointed, in making this decision we have needed to balance the increased cost in managing our business with our desire to provide customers with competitive lending and deposit rates,” he said.
NAB chief customer officer Mike Baird said the 0.25 per cent rate reduction would save owner-occupiers making payments on a $400,000 home loan about $744 a year.
“We strongly believe reducing rates is the right thing to do by our customers and reflects our focus on earning trust in the community and rewarding our loyal existing customers,” Mr Baird said.
Sally Tindall, research director at comparison site RateCity, said big banks should now face renewed competition for customers with some smaller lenders already agreeing to pass on the full cut to customers.
“ANZ’s decision to not pass on today’s cut in full is a huge disappointment and now all eyes will on the remaining big banks to see if they can go one better,” Ms Tindall said.