Waiting game for banks to cut rates begins

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The day before the May Reserve Bank of Australia meeting, I prepared a press release for the REIQ pre-empting a cut of 50 basis points to 3.75 per cent. Did I believe they would do this with any level of certainty? Well, not really. Indeed, when the REIQ CEO offered a bet on a cut of 0.50 per cent or 0.25 per cent, I didn’t take him up the offer. Obviously, I now bitterly regret that decision.

The majority of economists were forecasting a cut of 0.25 per cent as the Reserve is usually fairly conservative unless a significant economic upheaval – such as the GFC – is on the horizon. While yesterday’s interest rate cut caught many by surprise, I originally predicted such a forceful reduction because recent commentary from the Reserve was questioning the validity of lenders continued excuses that higher funding meant they had to increase rates independently of any decisions from our central bank. In a case of curious timing, the ANZ this morning reported its first-half underlying profit of just under $3 billion – a record result.

Last week, the REIQ CEO said that it was unfortunate the major lenders continued to insist on achieving profit margins more in tune with the good times rather the current economy reality. In fact, he said, in the game of cat and mouse that lenders seem to play with the Reserve and their customers when the central bank reduces the cash rate – like today for example – the Reserve had to get back some control and reduce rates by at least 50 basis points. This is exactly what it did yesterday.

It will be very interesting to hear the excuses the banks use for not passing on the full 0.50 per cent to their customers, because if one thing is certain in today’s economic environment it is lenders’ commitment to their bottom-lines – regardless of the state of the economy.

And now we wait….

 

Nicola McDougall, Media and Communications Manager, REIQ