Banks trim rates but maintain spreads

Big business and, to a lesser extent, households experienced minor reductions in average interest rates over the last two to three months, the quarterly Statement on Monetary Policy from the Reserve Bank of Australia shows.

The average actual rate paid by large businesses on variable rate loans eased by 10 basis points, to 6.97 per cent, at the end of April, the RBA's survey of the market found.

This largely reflects the decline in money market benchmark rates, such as the 90-day bank bill rate. The average risk margin charged on business loans "appears to have stabilised, as margins on new loans have moved closer to the average margin on existing loans," the RBA wrote.

Small business missed out, however, with the average annual rate unchanged at 8.99 per cent on term loans and 9.86 per cent on overdrafts.

For households, the average rate on a variable-rate home loan eased six basis points to 7.09 per cent.

The RBA noted increases in discounting on home loans of up to 20 basis points (over and above those already common three months ago).

Big banks have also introduced more finely-priced low-rate home loans, such as those marketed by National Australia Bank, through UBank, and the Commonwealth Bank.

The RBA observed that home loan volumes "may have fallen further in March'". The Australian Bureau of Statistics data on housing finance is due next Monday.

One factor constraining demand for new loans, especially on the consumer-side, will be talk of an accelerated tightening in monetary policy.

As expected, the Statement on Monetary Policy foreshadows the need for the cash rate target to rise to contain inflation, with many forecasts from financial market economists now pointing to one rise of 25 basis points in the cash rate (currently 4.75 per cent) as soon as next month and at least one more this year.