Reserve Bank Rate Cut Matched by Westpac and Commonwealth Bank

01 November 2011 - Which Way to Pay

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Reserve Bank Rate Cut Matched by Westpac and Commonwealth Bank

Following the decision from the Reserve Bank of Australia to cut interest rates by 0.25%, the largest banks in Australia, Commonwealth Bank and Westpac, followed suit. The move from the central bank to cut the official cash rate to 4.5% from 4.75%, a decrease of 25 basis points, came as a surprise to financial markets, which have been split into two camps over the RBA’s potential decision.

The move comes after data showing slowing inflation was released before the board meeting, indicating that the bank can safely put an end to restrictive policy. The move could be a risky one however as the boom in the mining sector has attracted huge investments which may, in turn, hike the rate of inflation in the near future.

The cut was given a 85% chance of happening by the interbank futures market, but many economists still thought the Reserve Bank would hold off on a cut. Commonwealth Bank and Westpac were quick to react to the decision, moving their respective mortgage rates in line with the central bank’s decision.

Commonwealth Bank is set to lower its standard variable rate to 7.56% from 7.81%, and Westpac is to lower its mortgage rates from 7.86% to 7.61%. Bankers are now eagerly awaiting the response of Nation Australia Bank and ANZ to the cuts, as they are predicted to make proportional changes.

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