Australian banks are set for another showdown with the Rudd Government over future interest rate cuts, with NAB boss Cameron Clyne making clear this morning he was "relatively unlikely" to pass on the full amount of the next rate cut.
NAB economist Alan Oster is forecasting another 75 basis rate cut next month with another 50 basis points in the second half this year.
Clyne made clear his customers won't be getting that amount.
Other banks contacted this morning confided they agreed with Clyne, underlining the politics of the move earlier this week to pass on the full level of the 100 basis point cut on official interest rates.
The rate cut came on the day of the Government’s $42 billion handout and the day after CBA told the market it was growing income quickly thanks to better profit margins, so in the scheme of things it would not have looked good for the big banks to have played hard ball this week.
Next time it will be different.
Each bank has a different funding book depending on the level of deposits and the like, but NAB’s costs have gone up from 65 basis points over cash rates from July 2007 to January this year to 99 basis today and it is looking at that increasing to 99 basis points in the near future.
The reason being term funding costs are higher because while cash rates have fallen and the swap rate spread has also fallen, Government bond rates have not fallen as quickly, so as the banks replace short term paper with long term paper the funding costs increase.
That at least is how the big banks see the world.
