Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have both slashed their interest rates in response to the Reserve Bank's cut yesterday, following the lead set by Bank of Queensland Limited (ASX: BOQ) on Tuesday.
In a move that took the market by surprise, the Reserve Bank cut the official cash rate to a new record low of just 2.25% in an attempt to fuel local growth. Speaking on ABC radio on Wednesday morning, Treasurer Joe Hockey urged each of the big four banks to pass the cut on to all customers, including home owners, small businesses and credit card holders.
Commonwealth Bank became the first of the big four to pass on the cut, reducing its standard variable rate (SVR) by 0.25 percentage points to 5.65 per cent – its lowest level in five years. Meanwhile, 0.25 per cent and 0.30 per cent will be slashed from its three year and five-year fixed rate products, respectively.
Westpac went one better, passing on a 0.28 percentage point cut, although its SVR remains higher than that of Commonwealth Bank at 5.7 per cent. Westpac had been under significant pressure to reduce rates further than the RBA given that it has maintained the highest SVR of any of the big four banks in recent years, possibly impairing its competitive position amongst them.
Indeed, the reductions passed on by the banks will increase the pressure on Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) to follow suit given the aggressive competition amongst the banks for new customers.
