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Lowe and Co. may cut rates, but will the banks?

Colin BrinsdenAAP
VideoThe Reserve Bank is expected to announce another interest rate cut when it meets on Tuesday

There are few certainties on Melbourne Cup Day, but economists are sure the Reserve Bank will romp home with an interest rate cut at its monthly board meeting.

If correct, it will quickly put the focus on the retail banks to respond.

Speculation of a rate cut gathered pace after a speech by RBA governor Philip Lowe last month, when he indicated the central bank was ready to do its bit to support the recovery from recession.

He said the board judged there was little to be gained from further monetary easing when the pandemic was at its worst.

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“As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier,” he said.

Economists widely predict the RBA will cut the cash rate to 0.1 per cent from the already record low of 0.25 per cent, the first change since March.

The same reduction will go for its three-year bond yield target rate and its term funding facility rate for banks.

And in its increasingly complex monetary policy actions in an low interest rate environment, economists also expect the RBA to start buying five to 10-year bonds to further keep market interest rates and funding costs low.

If the cash rate cut is passed on, the average monthly saving could be $33 on a $400,000 loan for an owner-occupier paying principal and interest.

Australian Banking Association chief executive Anna Bligh has assured customers banks will pass on as much as they can, but also points out that rates on savings and deposit accounts are already very low and will be taken into account.

Financial comparison website Mozo.com.au will also be monitoring how quickly the reductions are passed on to customers.

Its analysis found the big four banks’ tactic of going slow when passing on official rate cuts has pocketed them a $1.2 billion windfall since the RBA began cutting rates in 2011.

“With so many mortgage customers under pressure, if we see another cut to official interest rates ... we need the banks to end their longstanding practice of profiteering at their customers’ expense,” Mozo director Kirsty Lamont says.

Shadow treasurer Jim Chalmers said the RBA had only been put in the position of taking “extreme measures” because the Morrison government was cutting back its support too soon.

“When unemployment is high and rising, Scott Morrison can’t leave too much of the heavy lifting to the Reserve Bank,” Dr Chalmers said.

AAP

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