Bank's excuses starting to wear thin.

Article by Kevin Boyle

The Reserve Bank may have left interest rates unchanged yesterday but it has stated that banks are in a good position to start passing on savings to their home loan customers.

A good economic outlook was the underlying factor in the Reserve Bank's decision to hold rates this month and many economists expect further rate cuts later this year are very likely. RBA governor Glenn Stevens report also pointed out that funding conditions for financial institutions is becoming more favourable.

"Long-term interest rates faced by highly rated sovereigns, including Australia, remain at exceptionally low levels. Borrowing conditions for large corporations are very attractive," Mr Stevens said.

According to Tim Harcourt, professor of economics at the University of NSW, reading between the lines it's a signal that the RBA thinks the banks have more room to pass on future rate cuts. "The 'cost of funding' excuse banks have been using could start wearing a bit thin this year," He said.

Australian banks have blamed high wholesale funding costs and high deposit interest rates as the reason for not passing on the full rate cuts to customers. Contradictory to the claims, Glenn Baker, ING direct chief financial officer, says ING Direct have been able to pass on full rate cuts in line with the RBA due to the significant drop in the cost of wholesale funding.

While official interest rates might be on hold, this provides an opportunity for Australian home loan holders to kick start self initiated rate cuts, beginning with a home loan health check and switching to a lower rate home loan.

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