While Australia's business community was not surprised by the expected decision of the Reserve Bank of Australia (RBA) to hold on Tuesday the current overnight cash rate at 3 per cent, borrowers may be in for a surprise.
Despite the central bank's policy, The Australian hints of a possible rate war with one Australian bank contemplating on cutting its standard variable rate by 5 basis points.
The news is based on a News Limited shadow Reserve Bank voting which confirmed the RBA decision, but three members of the shadow monetary board believe in a possible out-of-cycle rate cut which could spark the rate war.
Centre for Independent Studies research fellow Stephen Kirchner, Airport economist Tim Harcourt and Market Economics Managing Director Stephen Koukoulas were the ones who hinted of the possible rate cut which could be explained by the lower funding cost.
RBA cited the improved local and overseas economic outlook as reasons why it opted to keep the current key lending rate at 3 per cent.
"Looking ahead, the peak in resource investments is approaching, as it does, there will be more scope for some other areas of demand to strengthen. Dwelling investment appears to be slowly increasing, with higher dwelling prices and rental yields," RBA Governor Glenn Stevens said on Tuesday.
"The United States is experiencing a moderate expansion and financial strains in Europe are considerably reduced compared with the situation through much of last year. Around Asian generally, growth was dampened by the earlier slowing in China and the weakness in Europe, but again there are signs of stabilization," he added.
An out-of-cycle rate cut would be welcomed by borrowers. Banking experts have criticised the big four for not passing in full previous RBA rate reductions.
Milind Sathye, a professor of banking and finance at the University of Canberra, belied the claim of the banks that the high cost of funding is behind their decision to pocket some of the rate cuts. Former RBA Governor Bernie Fraser explained the banks' behaviour to the premium on profit despite room to cut their mortgage rate.
The scenario painted by the shadow RBA board could just dispel those criticisms.