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Australian Banks Pass On Full RBA Rate Cut as Funding Eases

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Australian Banks Pass on Full RBA Rate Cut as Funding Costs Ease
Promotional material from Australian banks, the Commonwealth Bank of Australia, clockwise from right, Westpac Banking Corp., National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd. (ANZ), are arranged for a photograph in Sydney. Photographer: Ian Waldie/Bloomberg

May 8 (Bloomberg) -- Three of Australia’s major lenders passed on in full the central bank’s interest-rate cut for the first time in 17 months, sending benchmark home-loan costs to the lowest since 2009.

Commonwealth Bank of Australia, Westpac Banking Corp. and National Australia Bank Ltd. cut their variable mortgage rate by 25 basis points yesterday after the Reserve Bank of Australia trimmed its key rate by the same amount to a record-low 2.75 percent. Australia and New Zealand Banking Group Ltd. will review its rates on May 10, Annabel Urqhart, a Melbourne-based spokeswoman for the bank, said by phone.

“Banks’ funding cost has stopped rising, giving them all room to hand out the full RBA cut,” said Brett Le Mesurier, an analyst at BBY Ltd. in Sydney. “It could spur mortgage demand, which is very weak now.”

Since November 2011, when the central bank began its latest round of rate reductions, Australia’s top four lenders held back a portion, citing high wholesale funding costs and increased competition for deposits. The yield premium on bank bonds over government debt is the lowest since November 2007, Bank of America Merrill Lynch data show, and CBA Treasurer Lyn Cobley said in March that competition for deposits was moderating.

Shares in the four banks traded higher in Sydney, with ANZ rising 0.8 percent at 11:49 a.m. The benchmark S&P/ASX 200 index climbed 0.7 percent.

Cheaper Loans

A 25-basis-point reduction in mortgage rates saves customers A$62.50 ($63.68) a month in interest payments on the average A$300,000 home loan, NAB said in a statement.

Outstanding mortgages grew 4.4 percent in the year ended March, RBA data show. Australia’s economic growth may slow to 2.5 percent this year, according to a February central bank forecast.

The rate cut “will provide continued stimulus to strengthening housing markets,” Andrew Wilson, a senior economist at Australian Property Monitors in Sydney, said in an e-mailed note.

Australia’s major banks have been criticized in the past for not passing on in full central bank rate reductions while sometimes raising mortgage rates by more than the RBA’s benchmark increases. In 2009, Treasurer Wayne Swan said Westpac had given customers “a slap in the face” before the Christmas holiday season when the bank boosted its mortgage rate almost twice as much as the RBA’s key-rate increase.

ANZ Bank’s cash profit climbed 10 percent in the first half from a year earlier, the lender said on April 30. Westpac reported a similar increase on May 3. The so-called four pillar banks will post record full-year profits of A$26.5 billion this year, according to data compiled by Bloomberg.

To contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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