Will ANZ bank's monumental interest rate cut heat up competition?

The ANZ bank announced a 0.27 percent interest rate cut to its standard variable home loan on Friday 10 May, going over and above the 0.25 percent rate cut announced by the Reserve Bank of Australia (RBA), reports Fairfax Media.

The move by the RBA to cut interest rates to a record low of 2.75 percent has triggered a number of announcements by home loan lenders that is certain to be putting a smile on the faces of Australian home owners.

The Commonwealth Bank (CBA), Westpac and NAB announced that they would be passing on the full interest rate cut of 0.25 percent. However, ANZ has gone one step further announcing it would reduce its standard variable interest rates by 0.27 percent.

The move now puts ANZ in equal position with NAB in offering the lowest variable interest rate home loan of the Big Four banks, both at 6.13 percent. The CBA sits just slightly above with 6.15 percent, while Westpac now holds the highest standard variable interest rate of the Big Four banks at 6.26 percent.

The move by the ANZ is the first of its kind by one of the Big Four banks but with high competition amongst the banks, more big announcements seem likely.

"This move is going to heat up competition between lenders who will have to offer similar rate cuts to retain and attract customers," mortgage broker Loan Market's Paul Smith said.

Reports by the Australian Financial Review indicate that the NAB may already be gearing up to make a move.

"Oh Absolutely, I think that's a possibility," said NAB chief executive Cameron Clyne when asked if the NAB could reduce interest rates out of cycle to the RBA. "I can't predict when because it's going to depend on funding conditions. But I think it's important we continue to really talk about the fact that what drives bank funding costs is not the RBA," Mr Clyne said.

Last week also saw the announcement by the Greater Building Society to reduce it's standard variable home loan rates by 0.30 percent, 0.05 percent more than the RBA, making it the largest interest rate reduction of all the banks recorded by Mozo, since the RBA cut rates last week.

Australians looking to take advantage of the record low interest rates can compare home loans and find a better bank here.

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