In a surprise move, ANZ Bank announced on Friday that it will pass the 25 basis points cut made by the Reserve Bank of Australia (RBA) earlier this week to 3.25 per cent. Most analysts were of the belief that the big four would hold 10 basis points out of the 25 basis points reduced by the RBA.
The ANZ decision is seen as a major step in favour of borrowers who have expressed dissatisfaction with the past decisions of the big four to keep part of the overnight cash rate cut or even hike their standard mortgage rate when the RBA retained the key lending rate.
ANZ's decision is also considered a landmark because the other banks followed ANZ's lead since the latter announced that it would not be dependent on RBA policy for its rate decisions but set the second Friday as its standard rate decision announcement date.
The ANZ rate cut, which takes effect June 15, would bring down the lender's key lending rate to 6.8 per cent which is the lowest among the big four.
A study released this week by the Australian Institute said that the big four collectively earn $6.2 million daily by not passing to borrowers the RBA rate cuts. The banks cited the higher cost of funding from overseas as their justification for holding on to part of the rate cuts made by the RBA.
ANZ Chief Executive for Australia Philip Chronican maintained that the bank's funding costs remain high despite the decision to pass in full the rate reduction. He explained that ANZ decided to pass in full the overnight cash rate cut because most of its borrowers do not directly benefit from the strong resources sector in Australia despite the release of strong economic growth data this week.
"The bottom line is that while deposit customers are receiving very competitive deposit rates, many of our borrowing customers are under pressure from a range of other costs," Mr Chronican said in a statement.
"The decision recognizes that, although we need to be realistic about funding costs and the challenges the global economic situation is presenting, ANZ also needs to absorb its share of the burden.
"We felt that reducing interest rates for home borrowers and for small business was the right decision in these circumstances.
"Hopefully this decision will help relieve some of the pressures that we know homeowners and small businesses are facing at present," he added.
With the unexpected ANZ move, Aussie borrowers are now waiting for the announcements of National Australia Bank, Commonwealth Bank and Westpac. Treasurer Wayne Swan, who has been pushing banks to pass in full the RBA rate cuts, will likely be pleased with the ANZ decision and urge the three other banks to follow ANZ's footstep.
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