Will the major banks pass on interest rate cuts?

By Amy Bradney-George
1 September 2008

When home loan interest rates could change at the flip of a coin, it’s hard to know whether you’re getting the best deal. Every bank and credit union has different policies on interest rates, which makes it even harder to know when to take out a loan, or if current loans will be affected by inflation.

With the Reserve Bank of Australia (RBA) expected to announce a rate cut this week, things could be looking up for those of us struggling to make ends meet. Until now most of the major banks have been playing their cards close to their chests and keeping quiet on whether their customers will benefit from a rate cut.

It can be difficult to predict how the RBA will affect any particular bank, but some of Australia’s top institutions were happy to share their thoughts on rate cuts to help us see the bigger picture.

National Australia Bank
The National Australia Bank (NAB) says it will pass on rate cuts to customers if the RBA announces a rate cut of 0.25% this week. NAB was the first bank to commit to passing on rate cuts, announcing the decision last month.

The bank’s Chief Executive Officer Ahmed Fahour says short term funding costs have made the decision financially viable.

“While we continue to see volatility in international markets and increases in the average cost of long term funding, we have experienced some short term funding relief which we are keen to pass on to our customers,” he says.

This news is good for customers, but due to a reliance on offshore funding Mr Fahour also says there’s a chance long term funding costs will stay high. Their decision to pass on any RBA rate cuts this month suggests NAB is one bank that’s happy to let their customers know what’s ahead.

Commonwealth Bank
While the Commonwealth Bank wasn’t sharing much information with the media, customers may have more luck contacting them directly.

A spokesperson for the bank says: “Any interest rate change by the RBA is hypothetical at this point in time and we do not comment on hypotheticals.”

ANZ
ANZ announced last month that customers would get full benefits from an RBA rate cut.

Chief executive officer Mike Smith says they’re waiting to hear from the RBA.

"If funding costs continue at the current levels and the Reserve Bank do actually cut rates, then there will be a full flow on to our mortgage customers,” he says.

For anyone looking into taking out a home loan, ANZ has also just lowered fixed rates for new customers (from September 1). Rates for their Fixed Rate and Residential Investment Home Loans are said to drop between 0.3% and 0.5%

This is the second time ANZ has reduced its fixed interest rates in just under a month, so it might be worth checking out their rates if you’re thinking of investing in the near future.

Westpac
Westpac says it won’t make a decision until the RBA has announced its intentions this week, but have indicated that they will be passing on rate cuts to customers if the figures look promising.

“Westpac's Chief Executive Gail Kelly has said on numerous occasions that she would love to pass on in full a 25 basis points reduction if that’s what the RBA decision is…but obviously we will make a decision depending upon all known factors at the time including funding costs,” said a Westpac spokesperson.

Like ANZ, Westpac has already moved to reduce interest rates for customers twice in the last month.

“In some cases our fixed interest rates have moved down by as much as 80 basis points on three and four year loans,” the spokesperson says.

At this point in time the rate for our key discounted fixed mortgage package - the Premier Advantage Package - is now the cheapest in the market for two, three and five-year terms while we are equal lowest with NAB on our one-year rate.”

St George
St George is staying quiet on what it might do this week, but the bank did explain there were other factors it would have to consider before making changes to their interest rates.

“There are many other variables besides the official cash rate that affect interest rates and these will need to be considered when making decisions,” a spokesman for the bank says.

St George’s rates are constantly under review, and their decision will be influenced by factors including customer benefits and funding costs.

“We are very mindful of the pressure households are under with the increased cost of petrol, grocery prices and interest rates. If or when the RBA reduces its rates, the overall cost of funding will need to be considered and whether any decrease in our total funding costs occur over a sustained period,” the bank says.

The times, they are a-changin’
The RBA’s meeting this month will clearly bring some changes to interest rates of different banks and credit unions, but some banks, like ANZ and Westpac, are already moving to reduce rates for their customers.

For the home owner and prospective investor, it may be useful to look at these responses from the 5 major banks to help you decide where you’ll get the best price and the best service. It can sometimes be more costly to change banks when you already have a partially-paid mortgage, so make sure you weigh up all the factors before taking any steps. Some institutions are also open to negotiating rates on a case-by-case basis, so it could be worth investing in a phone call or two to see what your current bank can offer you.