While yesterday’s rate cut by the Reserve Bank has been welcomed by business groups, pressure is mounting to ensure the full rate cut is passed on.
The Bank of Queensland is the only major bank to react, cutting its standard variable rate by 20 basis points to 6.71% immediately after the RBA’s announcement, with no movement at this stage by the big four banks.
“Given the continuing pressure on the cost of funding, a 20 basis points reduction is the best balance between our customers and shareholders,” Bank of Queensland chief executive Stuart Grimshaw said yesterday.
Business groups including the Australian Chamber of Commerce and Industry have called on the banks to pass on the full amount of the rate cut as quickly as possible.
Greg Evans, director of economics and industry policy at ACCI, said the RBA rate cut meant conditions in the retail sector will receive a vital lift heading into the crucial Christmas trading period.
“To maximise the benefit of official rate reductions it is essential the full amount of the easing is passed on by the commercial banks to all borrowers and also in a timely manner,” he said.
ACCI is also pushing for a further 25 basis point rate cut in November on the basis of what Evans describes as “the deterioration in the outlook for global growth”.
Evans said growth in activity outside the mining sector is modest and highly varied by industry.
“Balancing very strong growth in resources sector activity with relatively subdued growth elsewhere is a difficult task and one that should be attempted with caution,” he said.
“The RBA board should take advantage of the scope to cut rates further, failure to do so risks stalling growth.”
Treasurer Wayne Swan has once again urged banks to pass on the full interest rate cut, warning today that many of the retail banks “have form” in not passing on full cuts but saying families and small businesses with mortgages deserved the cut.
“I think we’ll see a variety of responses from a variety of financial institutions,” Swan told ABC radio.
“From my point of view, the banks should not keep some of this rate cut back; they should pass it through in full.”
The Coalition has also urged the banks to pass on the full rate cut to small business loans and claims the ‘spread’ between the official cash rate and residentially secured small business loans had jumped from 2% to 4.50% under the current government.
“It’s important the RBA cut is passed on in full and quickly to business because under Labor, the gap between the cash rate and residentially secured loan rates paid by small business has more than doubled,” shadow small business minister Bruce Billson said.
Both the Commonwealth Bank and Westpac told SmartCompany this morning that their rates “are currently under review”. However, both banks would not confirm if any rate cut would be passed on and when this would occur.
The ANZ announces changes to lending rates on the second Friday of every month and confirmed any rate cut will be announced on Friday, October 12.
A spokesperson for the National Australia Bank says the majority of the bank’s business customers are linked to market based pricing like the Bank Bill Swap Rate.
“This market rate has already fallen to reflect the change,” she says.
“Our standard variable business lending rates are currently under review”.