Westpac and ANZ first to cut
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Westpac became the first of the banks to cut rates after the RBA announced a cut of 100 basis points to reduce the cash rate to 3.25%.
ANZ followed shortly after announcing a full cut of 100 basis points just like Westpac.
The ANZ and Westpac have lowered their rates to 5.91%. The ANZ announced the cut will take effect from 13 February and further cuts will be passed on subject to funding costs.
As at the time of posting the Commonwealth Bank and NAB have not announced a rate cut..
RBA cut rates by 100 basis points
The Reserve Bank of Australia cut rates by 100 basis points today to take the official cash rate to 3.25%. The cut comes on the same day as Prime Minister Rudd announced a $42 billion fiscal stimulus aimed at short and long term benefit to stimulate the Australian economy and protect jobs.
The RBA have now cut the cash rate by 300 basis points since September 2008 to the lowest point since 1964.
Next month is not likely to see as greater cut as those of recent months as the RBA look towards the Government’s fiscal stimulus to kickstart the domestic economy from the global turmoil inflicting markets.
RBA to slash rates
The Reserve Bank of Australia is expected to slash rates by 100 basis points this week as the Australian economy is in recession and looking down the barrel of a world economy that has badly derailed.
With the world in recession the RBA will need to act swiftly to reduce interest rates in a move to boost domestic growth and inspire confidence in a domestic economy that badly needs a boost amid rising unemployment and falling consumer spending.
With inflation no longer the problem, that it has been in recent years, the brake is no longer on Glenn Stevens allowing him to act decisively to boost domestic growth. The Australian government are also likely to support the domestic economy with another rescue package expected to be announced in coming days.
Australian Bank Watch will announce the rate cut when announced this week.
NZ slash rates by 1.50%
The Reserve Bank of New Zealand slashed rates by 1.50% to 3.5% in a desperate attempt to pump life into the severely faltering New Zealand economy.
The action by the Reserve Bank Governer of New Zealand is in direct response to the state of the world economy being in recession. The cut brings the official cash rate down by 4.75 since July 2008 to a record low since the introduction of the offical cash rate in 1999.
The cut which caught analysts unaware surprised the market who were expecting a cut of 100 basis points. Future NZ rate cuts are likely to be smaller indicating the lack of margin the RBNZ have to make a material impact on the economy going forward.
Bank of England & ECB slash rates
The Bank of England and the European Central Bank (ECB) have slashed rates to respond to faltering global demand as the world economy balances of the edge of the abyss.
The Bank of England cut rates to 1.5% down from 0.50%, the lowest rate in 314 years in an attempt to stop the economy from contracting. The English economy is in a dire position as the economy is set for it’s worst year since 1946 as the economy continues to contract at a record pace.
Meanwhile the ECB cut rates to 2% down from 2.50% as the economy continues to struggle and indicated more cuts could be on the way in an attempt to stimulate economic demand.
RBA set to cut by 0.75% in February
With the Australian economy struggling and fears of a doubling in the unemployment rate over the life of the current economic cycle the Reserve Bank are likely to react swiftly again by slashing rates by 0.75% in February. This would take rates to 3.50%.
The money markets have already priced such a cut into the market as the Australian economy balances on the edge of a knife with increasingly negative news each day.
With concerns of rising unemployment and falling GDP the interest rate cuts seem a certainty as the RBA is forced to react to prevent failing confidence in the economy. While the cuts with be a huge boost for home owners the general consenus is for harder times ahead as consumers prepare for a tough period in the economy with many fearing job cuts.
Where to on interest rates in 2009?
Well this is what most Australian’s want to know in 2009. How low will interest rates fall to prevent Australia from a hard landing well it would seem we may be aiming for a 2.00 to 3.50% target range in 2009.
The world recession continues to roll on and bad news is getting more and more each day. In fact it could be said the negativity in the market has dulled somewhat as people are getting used to hearing bad economic data every day.
Australia while still holding up well is certainly not immune, 2009 will likely show a healthy rise in the unemployment rate and we are likely to hit record low interest rates. Some economic forecasters are expecting the RBA to reduce rates to as low as 3.00%, that is a 1,25% cut from current levels.
This is excellent news for home owners and those entering the housing market but it must also been seen in the light of the harsh economic times ahead. For the RBA to lower to those levels things will have become considerably worse for the domestic and global economy.
I had forecast some month’s ago we were likely to hit 3.75% in 2009, it now seems almost certain we will go lower. In fact the money markets are forecasting a cut of 0.50% in February, this will lower the RBA rate to 3.75%.
On the flipside the funding costs for the banks are also decreasing so we should be seeing cuts from the big banks on their rates in the coming months outside of any reduction by the RBA. But without healthy competition in the matket I suspect this unlikely.
How do you think 2009 will pan out? How low do you think the RBA will cut rates?
Australian Bank Watch Changes
I have made some minor changes to the Australian Bank Watch site. You will note on the left hand sidebar I have expanded the selection of variable home loan rates to include a number of leading Australian banks outside of the top 4.
I have also added the cash rates for the US Federal Reserve, European Central Bank, Bank of England, Bank of Japan and Reserve Bank of New Zealand. These complement the existing Reserve Bank of Australia cash rate that is also displayed. This will help visitors more quickly make a comparison between global central bank interest rates.
I have importantly added a date for when the interest rates were last revised. This should only be used as a guide and the interest rates should always be checked on the bank website which I have links attached for ease of navigation.
It is difficult to keep up to date with all the interest rate changes and they are quite liquid at the moment so I thought it wise to revisit the date I last updated. I will revise these on average once a month but also will update upon any Reserve Bank rate decision.
I have also expanded the links to a number of additional banks that were not previously listed and links to the major central banks.
I hope you find the changes of use and please direct any feedback or things you thing Australian Bank Watch should include to wes@ausbankwatch.com
Happy New Year!
2008 Bank Consolidation 2009 Non-Bank Oblivion
2008 was an amazing year in hindsight. We saw massive consolidation across the global economy particularly in the once dominant banking sector and perhaps we have or are experiencing the worst financial crisis since the great depression.
Only time will tell on that last one but for Australian banks it was clearly a year of consolidation and a period that has once again tipped the weight in favour of the big four banks Commonwealth Bank, ANZ Bank, National Australia Bank and Westpac.
In fact Westpac was the big winner of the year, now Australia’s highest capitalised bank after their successful takeover of former No 5 St George Bank.
Commonwealth Bank also picked up a few through the year with the latest deal the Wizard Home Loans purchase, they also bought 33% of Aussie Home Loans and swallowed Bankwest.
ANZ Bank consolidated it’s position with new CEO Mike Smith re-focusing the bank on tigher fiscal discipline after early financial setbacks through poor lending practices. ANZ also pressed on with it’s focus on Asia as the future development pathway of the bank.
The National Australia Bank did not sit on it’s hands as it consolidated it’s reputation and focused once again on core business in the light of the continuing deterioration in credit markets.
So what’s ahead for 2009, clearly with the crippled financial markets for smaller non-bank lenders further consolidation with occur. It is also fair to say that the regional banks Suncorp, Bendigo Bank and Bank of Queensland are likely to merge or will be swallowed by the big banks.
2009 will also likely see the death of the non-bank lender. These have been virtually damaged beyond repair in 2008 but will disappear or be bought for a pittance.
One last statistic to leave you with, in 2007 the big four banks had 45% of the mortgage market, at the end of November 2008 it was almost 90%. Don’t expect bank margins to reduce anytime soon.
Australian Banks interest rate margins expand
With RBA interest rates now at 4.25%, the same rate that was in place in 2002 it is easier to make an assessment of the margins being charged by the Australian banks.
In 2002 the average standard variable interest rate offered by the big four banks was 6.07%. The current average standard variable rate is 6.82%, an increase of 0.75% from the levels of 2002.
The banks will put this down to the global financial crisis and while funding costs have indeed increased it also reflects an amount of margin creep.
It is estimated that about 90% of all lending is currently being done through the big banks while has heavily impacted the smaller lenders and the lack of funding options has rendered the smaller lenders to be unable to compete in the current environment.
Hence these small lenders have had to increase rates as they are unable to source funds as cheaply as the big banks. This has impaired the local lending market and once again given the banks the upper hand once again against the consumer.