Lenders back in synch

Lenders were back in synch with the Reserve Bank of Australia yesterday. Following the central bank's decision to cut the cash rate by 25 basis points, all banks announcing reductions in their standard variable mortgage rates cut them by 25 basis points.

Among the Big Four, National Australia Bank will reduce its standard variable rate to 6.13 per cent; Commonwealth Bank will reduce its rate to 6.15 per cent; and Westpac to 6.26 per cent.

Bank of Queensland will reduce its standard variable rate to 6.26 per cent, Suncorp Bank to 6.24 per cent, ING Direct to 5.47 per cent and UBank to 5.12 per cent.

Despite all the talk that banks might cuts their rates by more than the reduction in the cash rate no lender has done this so far.

Last year, the Reserve Bank cut the cash rate four times between May and December, for a total reduction of 1.25 percentage points. According to Reserve Bank data, the average standard variable rate fell by 95 basis points over the same period.

Since then, funding costs have started to come down, prompting speculation that lenders might make out-of-cycle rate cuts.

In a report issued last month, JP Morgan banking analyst Scott Manning said the reduction in the big banks' wholesale funding costs would give them scope to make out-of-cycle cuts to mortgage interest rates of about 10 basis points.

However, Manning said, such cuts were more likely next year than this year. JP Morgan has calculated that if current wholesale rates hold, the reduction in average funding costs for the big banks will be around 24 or 25 basis points over the next three years.

Glenn Stevens, governor of the RBA, said in yesterday's statement on the monetary policy decision that "financial conditions internationally continue to be very accommodative, with risk spreads reduced, funding conditions for most financial institutions improved and borrowing costs for well-rated corporates and sovereigns exceptionally low."

None of the banks that announced mortgage rate changes yesterday made reference to their deposit rates.