Banks will have to pass on more of the upcoming reductions to the official cash rate because of the impending inquiry into home-loan pricing by the Australian Competition and Consumer Commission (ACCC).
Chairman Rod Sims says “knowing we are there” conducting the inquiry will change the response of major banks to Reserve Bank rate cuts. Analysts who monitor big bank stocks agree, with one saying the majors will have no choice but to transmit reductions in full.
The four largest banks failed to do so in June, July and October, leading Federal Treasurer Josh Frydenberg to order the ACCC to investigate the mortgage market, including how banks make pricing decisions after RBA cuts.
Frydenberg specifically ordered the consumer watchdog to investigate the refusal of the banks to pass on in full the three recent interest rate cuts, creating the potential for a further round of government intervention.
The pricing inquiry run until 31 March. Futures markets put a further rate cut by the end of February as a 100% certainty. Some economists believe there will be two reductions by the RBA between now and then.
Sims says that banks would be likely to pass on more to customers now that the ACCC was on their case. “Us watching does make a difference,” Sims says.
After the ACCC began an inquiry into the east coast gas market and started publishing suppliers’ key pricing measures, prices fell.
A leading bank analyst says banks would be likely to pass on the entirety of the next RBA move because of the ACCC’s inquiry.
“I suspect they would pass on in full even though it will hurt earnings,” the analyst, who asked not to be named, says.