Westpac Chief Pours Cold Water On Expectations For Passing On Rate Cut

Post by Sharat on April 6, 2009 · Under Australian Economy, banking, home loans, interest rates, mortgages · Comment 

The Chief Executive of Australia’s largest bank my market value Westpac has poured cold water on an expectation that banks will pass on in full, any cut in official interest rates by the Reserve Bank of Australia when it meets on Tuesday.

Westpac chief Gail Kelly cited high funding costs as the reason and said that banks were paying higher interest rates as they compete for deposits and the cost of wholesale money market funding was the “higher than it’s ever been”.

Speaking on the Seven Network’s Sunrise program Mrs. Kelly said that the cost of funding had continued to rise.

The central bank on Tuesday holds its monthly meeting and will be deciding whether further interest rate easing is necessary.

A poll of 19 economists conducted by The AAP news agency suggests that the outcome of the meeting will be far too close to be able to call. The economists were evenly split on whether the central bank needs to ease monetary policy any further by cutting interest rates again.

Of the 19 economists polled, 10 expect the Reserve Bank to cut interest rates during Tuesday’s meeting, with seven suggesting that the cut should be as deep as 50 basis points whilst the other 3 suggested a more moderate 25 basis point cut.

The nine remaining economists included in the poll believe that interest rates should be kept at their 45 year low of 3.25 per cent.

The fixed income futures markets have already priced in a 25 basis point rate cut, which would leave official cash interest rate at their lowest levels since March 1960. A 50 basis point cut would put it under the all-time low of 2.89 per cent in January 1960.

The RBA left official interest rates on hold in March, after cutting by 400 basis points over five meetings between September last year and February. The banks have passed on around 360 of those basis points to consumers in rate cuts.

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