ANZ Bank cuts key mortgage rate but doesn't pass on full RBA rate cut
Surprise, surprise... Not!
ANZ Bank just announced that it will cut its key variable rate for owner-occupiers i.e. mortgage rates by 18 bps, failing to pass on the full 25 bps rate cut by the RBA's decision earlier. The reduction will go into effect on 14 June (banks like to delay these for as long as they can btw) and this decision is a major blow to Australian households.
I talked more about this at the end of last month here. But this is the key point:
The issue here is that despite funding costs falling below the cash rate, the banks don't really have much incentive to pass on that savings to their consumers - or at least not in full. The thinking here is that the RBA is "expected" to cut its cash rate to keep up now so for banks, they will just maintain the status quo until the RBA decides to act.
Unless the banks are confident enough that funding costs will fall in tandem with the RBA's cash rate, they are not likely to pass on the full savings to consumers and it will result in the same conundrum that we have seen with regards to household savings/consumption as well as a further drag on the housing market i.e. feedback loop.
If all the other major players follow suit alongside ANZ - which they likely will - then this rate cut doesn't hold much meaning and it would take more cuts by the RBA to actually transmit its monetary policy impact to the real economy.