Bank warns rate cut joy over

How bout fixed rates :(

http://www.smh.com.au/news/national/rate-cut-joy-over/2009/02/06/1233423496684.html

HOMEOWNERS are unlikely to enjoy the full benefit of further interest rate cuts, after the chief executive of the National Australia Bank warned it would cost too much to pass them on.

The comments came as the Reserve Bank predicted the economic boost of lower rates and government spending would start to grip by the end of the year, helping the recovery from a stagnant period marked by rising unemployment.

But the economic risks intensified as senators holding the balance of power in Parliament made it clear they would rewrite the Federal Government's planned $42 billion rescue plan next week.

Senior Centrelink and Tax Office executives warned that significant changes to the legislation would delay for several weeks the $12.2 billion in bonuses due to start flowing to low- and middle-income earners next month.

Just three days after agreeing to reduce rates by the same amount as the Reserve's full percentage point cut, the NAB said the high cost of raising money from international markets would prevent a similar move in coming months.

In a briefing to the sharemarket in which the bank forecast its profits for the first three months of its latest financial year had come in at $1.1 billion, the NAB chief executive, Cameron Clyne, risked the wrath of the Government and customers alike with his stance on another rate cut.

Mr Clyne said it was "relatively unlikely" NAB would be able to pass on any further rate cuts in full because of the continuing high cost of raising billions of dollars from credit markets.

In its quarterly statement on monetary policy, released yesterday, the Reserve Bank highlighted a possible plunge in business investment.

While the financial burden of many households has been eased by lower mortgage bills and government hand-outs, the Reserve is worried the next wave of the downturn will come as businesses cancel plans to spend on new warehouses, offices and equipment.

The bank says companies are finding it difficult to get loans and are reining in plans because of concerns about the economy.

Nevertheless, the central bank continues to predict Australia will avoid negative growth. Revising down its numbers, the Reserve said growth was likely to drop to a quarter of 1 per cent through the year to June, but then slowly build to 1.25 per cent by June 2010.

The forecast, which produced a similar result to a separate release by Treasury this week, in effect means the economy will be flatlining for much of 2009.

"While the international situation is likely to remain difficult for some time, the combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad," the Reserve said.

The central bank is likely to cut its cash rate below 3.25 per cent in the coming months, but might opt for smaller cuts rather than repeating this week's reduction.

The Treasurer, Wayne Swan, was unavailable for comment yesterday. But earlier this week the Prime Minister, Kevin Rudd, said that after all the assistance the Government had given the banks - including two guarantees - they should pass through interest rate reductions in full and as quickly as possible
 
He isn't saying there won't be further drops - just that further drops may not pass on the full amount (which is not particularly surprising).
 
He isn't saying there won't be further drops - just that further drops may not pass on the full amount (which is not particularly surprising).

As far as I know this latest cut was the only one passed on in full by all the major banks. They've held something back from all the previous ones anyway.
 
IMHO we were extraordinarily lucky with the timing of the latest RBA reduction of interest rates.

Due to ASX reporting requirements, the CBA had to report to the market the day BEFORE the RBA announcement that their profits would be greater than forecast.

This left them no excuse not to pass on the full cut, and clearly the other banks knew they would have to act accordingly, hence the almost immediate response when the RBA made its announcement.
Marg
 
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