After a two day standoff involving the big four Australian Banks and following last Tuesday’s announcement by the Reserve Bank to cut their official rate by25bps, the ANZ, NAB, CBA and Westpac have all finally announced that they too will cut their variable rates by the same amount. This is great news and follows plenty of pressure from Government sectors well publicized over recent days. For borrowers with variable interest rate facilities, these rate cuts will flow through in the next week or two.

In times to come however, ANZ have clearly indicated that the relationship between the RBA’s cash rate and the banks’ lending rates could be a thing of the past. According to ANZ, retail banking margins have been contracting as the cost of funds has progressively risen over the past 6 months and this has made the relationship between the cash rate and mortgage rates less relevant than they were pre GFC. The significance of the current economic issues in Europe has real consequences for the global economic outlook, and for the Australian economy and for bank funding costs.

All other lenders who have yet to make their decision would be expected to follow suit and pass on the full 25bps. We are still in a very competitive environment and for those who want to compete, they will simply match the rate reduction