How Big Four Banks of Australia Have Responded to RBA’s Cash Rate Cut

On 2nd July 2019, the Reserve Bank of Australia announced a further reduction in its official cash rate to 1.00% in order to make further inroads into the spare capacity in the economy.  After a cash rate reduction of 25 basis points in the month of June 2019, RBA has decided to further reduce the cash rate by the same amount. RBA believes that this easing of monetary policy will be helpful in reducing unemployment and achieving progress towards the inflation target, which will eventually improve the Australian economy.

Earlier, both Westpac and NAB have released reports forecasting the cash rate cuts.

As per RBA’s Governor, Mr Philip Lowe, the reduction in the cash rate will support job growth across the country. Philip Lowe further elaborated that despite the Australian economy performed reasonably well in the past few years, there still is a fair degree of spare capacity in the economy, making it desirable to reduce that spare capacity.

RBA’s Board believes that this consecutive easing of monetary policy in the month of June and July will help the central bank to promote collective welfare. Although the Board realises that there are some downsides to the monetary easing, it is of the view that this is placing the Australian economy on a better path.

The pressures of the cash rate reduction have forced banks to cut down their interest rates in Australia.

How ANZ has Responded to Cash Rate Cut

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Following the RBA’s decision, one of Australia’s leading banks, Australia and New Zealand Banking Group Limited (ASX: ANZ) has decided to decrease the variable interest home loan rates for Australian home and residential investment loans by 0.25% per annum, passing the reduction in the cash rate to its customers.

And along with that, for Standard Variable Rate Owner Occupiers paying principal and interest, the bank has cut down the Index Rate to 4.93% per annum which was earlier set at 5.18% per annum, plus, the bank has reduced the Index Rate for Standard Variable Rate Owner Occupiers to 5.48% per annum from 5.73% per annum.

The bank has informed that all variable rate reductions will be effective from 12th July 2019.

At the time of writing on 4th July 2019 (AEST 1:45 PM), ANZ’s stock is trading at a price of $28.200, up 1.475%, with a market capitalisation of circa $78.77 billion.

How Commonwealth Bank has Responded to Cash Rate Cut

In its response to RBA’s cash rate cut decision, Australia’s leading provider of integrated financial services, Commonwealth Bank of Australia (ASX: CBA) also reduced interest rates for homeowners and making a deliberate choice to limit the interest rate reduction on the most popular savings account.

CBA reductions for Borrowers were as follows:

  • Owner Occupied Principal and Interest Standard Variable Rate home loan reduced by 0.19% per annum to a new record low rate of 4.93% per annum;
  • Investor Principal and Interest Standard Variable Rate home loans reduced by 0.19% per annum to 5.51% per annum
  • Owner Occupied Interest Only Standard Variable Rate home loans reduced by 0.25% per annum to 5.42% per annum
  • Investor Interest Only Standard Variable Rate home loans reduced by 0.25% per annum to 5.89% per annum

CBA is focused on balancing the benefits and the costs of further interest rate reductions between its 1.6 million home loan and over 6 million savings customers. While the bank has not passed on the full rate reduction to its deposits, it has limited the interest rate reduction to 0.15% per annum to a most popular savings account, NetBank Saver and along with that it has offered some offers for savers.

Offer for savers are as follows:

  • A special five month term deposit rate introduced at 2.20% per annum, a 0.20% increase
  • Existing CBA pensioner customers will also be eligible for an additional 0.10% per annum bonus on this special five month term deposit, taking the rate to 2.30% per annum

CBA passed on between 0.19% per annum and 0.25% per annum interest rate reductions for its home loan customers and believes that this combination of pricing changes will deliver a fair balance of outcomes for both savers and borrowers.

At the time of writing on 4th July 2019 (AEST 01:50 PM), CBA’s stock is trading at a price of $82.110, up 1.433%, with a market capitalisation of circa $143.3 billion.

NAB’s Response to RBA Cuts

Australia’s leading business bank, National Australia Bank Limited (ASX: NAB) reduced its variable home loan interest rates by 0.19% per annum, which could save owner-occupier customers’ paying principal and interest on a $400,000 home loan an additional $552 per year. And if 25 basis point reduction is included in this, these owner-occupier customers could save a total of $1,296 a year.

NBA has further informed that if the official cash rates are further reduced, it has no plans to decrease the rates by more than 19 basis point as home loan rates are already at record low levels and time as deposit and savings rates are also very low.

NAB’s advertised Tailored Home Loan variable rates will be as follows:

NAB’s variable home loan rates (Source: Company Reports)

At the time of writing on 4th July 2019 (AEST 02:00 PM), NAB’s stock is trading at a price of $26.930, up 1.165%, with a market capitalisation of circa $76.75 billion.

How has WBC responded to cash rate cut?

One of Australia’s oldest and largest bank, Westpac Banking Corporation (ASX: WBC) announced a range of mortgage rate decreases for variable home loan customers.

For owner-occupier customers, the bank has reduced the rate by 0.20% per annum and for investor customers with interest-only repayments, the bank has reduced the rate by 0.30% per annum.

WBC has advised that the interest rate changes will be effective from 16th July 2019.

The interest rate changes are as follows:

  • Variable home loan (owner occupier) rate has been reduced by 0.20% per annum to 4.98% per annum for customers with principal and interest repayments
  • Variable residential investment property loan reduced by 0.20% per annum to 5.53% per annum for customers with principal and interest repayments
  • Variable home loan (owner occupier) rate reduced by 0.20% per annum to 5.57% per annum for customers with interest only repayments
  • Variable residential investment property loan rate reduced by .30% per annum to 5.79% per annum for customers with interest only repayments.

At the time of writing on 4th July 2019 (AEST 02:15 PM), WBC’s stock was trading at a price of $28.260, up 1.29%, with a market capitalisation of circa $97.37 billion.

In the light of RBA’s cash rate cut, many media companies have been speculating the outlook for the financial services companies and specialist investment platforms. On 3rd July 2019, one of the leading publication of Australia expressed its views on HUB24 Limited (ASX: HUB), for which, HUB responded with assurity that it maintains flexible fee arrangements with licensees for its clients. With regards to HUB’s target price, the company has informed that as per various analysts, the target share prices of HUB are set between $10.90 and $15.95.

In the last three months, HUB’s shares have declined by 26.36% as on 3rd July 2019. At the time of writing on 4th July 2019 (AEST 2:30 PM), HUB’s stock was trading at a price of $11.450, up 5.336%, with a market capitalisation of circa $677.52 million.


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