Banks to Move on Rates outside of RBA Call

There has been some media activity within the finance industry and also within the consumer space around speculation that a bank or some lending institutions will move their interest rates down, outside of the RBA cash rate announcement.

The speculation has arisen due to the easing in the costs of wholesale funds, which in simple terms is the cost of the money the bank uses to on lend at a higher rate to mortgage holders and other lending products.

In the past couple of years the banks and other lenders have argued the cost of this money has become more expensive and thus they haven’t passed on the full cash rate reduction the Reserve Bank of Australia has issued.  For the most, there is truth to this argument, but in the past 3 – 4 months the RBA along with several economic commentators have expressed their views that such claims are less than likely regarding the bank’s costs of funds today.

So is this the reason for them considering a rate move?

I don’t believe so.  It’s hard to see any bank or lenders deciding just to be nice to their customer base that they would decide to pass on a generous rate cut.  Besides it would cause all manner of pressure to many large institutional investors, who rely on the huge profits the banks and lenders produce.

In reading more into it, I think it has far more to do with a slow lending marketplace and the need to win over new business for the existing pool of borrowers in the market who currently have a mortgage.  So the speculation is more about buying new business through more attractive interest rates, than doing a mass discount to their existing client base. By doing so they are looking at making their interest rates more attractive to win over re-financers from the other banks and lenders.

Furthermore these decisions also have the potential for a huge Public Relations benefit, if they are seen to be giving more back to their customers.  There is no doubt the banks are very frustrated with the huge media bandwagon that congregates on the first Tuesday of each month looking for bank blood.

So in 2013 you more than likely will see more competition in the mortgage arena, and not only amongst the traditional big 4 banks, but other lenders will seek to win over consumers with better mortgage offerings.

We all watch this space with interest, and for our clients, you know if we see a better offering we will be sure to let you know, that’s the advantage of working with us, we get to shop the market on your behalf.