(8 April 2009 – Australia) The RBA has made a decision to cut the target cash rate by 25 basis points to the lowest level since 1960, but the banks have thus far not passed the full rate cut on to customers.The Reserve Bank Board decided at its monthly meeting lower to the cash rate by 25 basis points to 3.0 percent in what is the can be termed the most aggressive monetary easing on record.
The RBA said cited continued contraction in the global economy further mark downs in assessments of near term outlook. The bank also said that there are tentative signs of stabilisation in several countries, including China, though it is too early to judge on the long term sustainability.
While markets have improved globally and banking systems are making progress to resolution, sentiment is still fragile, leading to a contraction in economic activity, which is affecting asset quality of financial institutions.
As for the Australian economy, the RBA said that capacity utilisation has fallen from its peak, and will decline further over the rest of the year.
Despite what the RBA dubbed major changes to monetary policy and record low rates, the Board judged that there was scope for a further modest adjustment to the cash rate, in order to support to domestic demand over the period ahead.
The Big Four banks, as warned recently, do not look like they will pass on the rate cuts to their customers. CBA was the first to announce its position on rate cuts, passing on just 10 of the 25 basis point reduction.
NAB, however, passed on none of the rate reduction, citing higher funding costs, while no word has come out from any other bank, including ANZ and Westpac, on their decision on rate cuts.
CBA’s Group Executive Retail Banking Services, Ross McEwan, said that the cost of wholesale funding remains extremely high and as old funding matures and is replaced at much higher rates average cost of funding continues to rise.
Intense price competition on term deposits is also lifting the cost of retail deposit funding versus the official cash rate, he said.