For once the Big Four banks are acting with a social conscience, passing on the full RBA interest rate reduction. This follows the RBA’s decision to drop the official interest rate 25 basis points to 0.5%.
Normally the major banks hold back at least five basis points, knowing that each basis point not passed on to borrowers will lift profits by about $10 million a year, says the Australian Financial Review. This time the big four have all matched the RBA’s cut for home loans. AFR columnist Tony Boyd says: “In the past, the banks have argued they must balance the interests of all stakeholders when considering how to adjust their loan rates. They were willing to cop the political backlash in the expectation it would all blow over in a few days. “But this time around, there was no wriggle room. Prime Minister Scott Morrison had gone out strongly talking up the national interest and Treasurer Josh Frydenberg had been on the phone to the big bank CEOs.
“The last thing the banks want is a solvency crisis in their loan books caused by any businesses short on cash flow. The banks are also concerned about community expectations.”