Commonwealth Bank of Australia (ASX: CBA) has announced that it intends to pass on the full rate cut by the RBA to consumers.
The Reserve Bank of Australia is Australia’s central bank. One of its biggest roles is to decide Australia’s interest rate, taking into account economic conditions including unemployment, inflation and the housing market. The RBA interest rate has a ripple effect across the whole economy.
What Have Commonwealth Bank And ANZ Done?
The RBA decided to cut Australia’s interest rate by 0.25% today to 1.25%, to hopefully help borrowers and the economy.
It’s one thing for the RBA to cut rates, but it’s another for Australian banks to actually pass on the cut.
First out of the blocks was Australia and New Zealand Banking Group (ASX: ANZ) which said that it would cut its interest rate by 0.18%, which means it’s profiting by 0.07% from not passing on the full cut.
Australia’s Treasurer Josh Frydenberg had a number of negatives to aim at ANZ. The Australian Financial Review quoted Mr Frydenberg: “The ANZ has let down its customers.
“I am very disappointed with the decision the ANZ has taken today. We heard from the royal commission that the banks were putting profits before people. As Treasurer of Australia the public has a legitimate expectation that they will see the full benefits of rate cuts as announced by the RBA.
“Bank funding costs have also declined further, with money-market spreads having fully reversed the increases that took place last year.”
However Commonwealth Bank, Australia’s largest bank, decided that it would pass on the entire rate cut to its own borrowers.
This makes CBA look better to politicians and potential borrowers because the bank did what was asked of it and its loans look a bit cheaper compared to ANZ’s before today.
Banking is a tough business, that’s why I would prefer to invest in the reliable ASX shares in the free report below over owning bank shares.
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