June 3, 2019
MELBOURNE (Reuters) – Australia’s treasurer has told the heads of the country’s big four banks that the government wants them to pass on in full any cash rate cut by the central bank, media reported on Tuesday.
The Reserve Bank of Australia (RBA) is widely expected to cut rates on Tuesday to a record low of 1.25% from 1.5% in what would mark the first rate change in nearly three years.
Treasurer Josh Frydenberg met with the bosses of Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group and National Australia Bank to discuss interest rates, Australia’s housing slump, regulatory supervision and a securitization fund, the Australian Financial Review said.
“With the economy facing significant headwinds domestically and internationally, it is important that the banks are continuing to keep their lending book open and that they pass on in full to the public any benefits of reduced funding costs,” the newspaper quoted Frydenberg as saying.
Growth in Australia’s $1.3 trillion economy is sputtering, with signs that domestic activity likely slowed in the three months ended March to an annual 1.7%, the weakest since the 2008 global financial crisis.
Inflation has remained under the RBA’s 2.3% target band and unemployment has ticked up to an eight-month high of 5.2% from a low of 4.9% in February.
RBA Governor Philip Lowe said last month the central bank would consider cutting interest rates in June to boost the economy, as inflation and wage growth are lagging its expectations.
Economists also widely expect the central bank to cut rates again in August to 1.00%, a Reuters poll showed.
The country’s big four banks have all recently cut fixed-rate mortgages to lure new borrowers ahead of the RBA’s anticipated cut in the benchmark rate.
But the big four, which control about 80 percent of Australia’s mortgage market, have not cut variable rates, as that would dent profits more. Their mortgage books are mostly tied to variable rates rather than fixed rates.
The banks will also be under pressure to pass on any rate cut in full as they battle to win back the market’s trust following a landmark misconduct inquiry that severely damaged their standing in the community.
(Reporting by Sonali Paul; Editing by Peter Cooney)