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ME Bank makes 'aggressive' 25-point interest rate cut

by Nick Bendel10 minute read

ME Bank has undercut the market by slashing its five-year fixed rate from 4.94 per cent to 4.69 per cent.

According to comparison website Canstar, the lenders that come closest to matching ME Bank on price are Qantas Credit Union at 4.74 per cent and Greater Building Society at 4.79 per cent.

ME Bank chief executive Jamie McPhee said the mutual had been able to reduce its five-year rate due to cheaper funding costs.

"Unlike the majors, we're keen to pass these opportunities on to customers and continue our aggressive position in the home loan market," Mr McPhee said.

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ME Bank unveiled a range of interest rate cuts during 2014, including a drop in its three-year rate from 4.69 per cent to 4.59 per cent during August.

AMP Capital chief economist Shane Oliver said fixed-rate funding costs have been falling alongside wholesale borrowing rates.

"A good guide to that is the five-year bond yield in Australia, and it's come down quite substantially to 2.25 per cent," Mr Oliver told The Adviser.

"In the last six months we've seen quite a sharp fall in bond yields around the world and in Australia.

"Last year, that started to drive five-year borrowing mortgage rates below the five per cent level and that's still continuing."

Mr Oliver said the fall in bond yields has been driven by the expectation that inflation will remain low.

That, in turn, has been largely driven by the fall in the oil price, which has fallen by 56 per cent in the past six months.

Mr Oliver said five-year fixed rates are unlikely to get much cheaper, although rates could keep falling if global economic trends continue.

"If the oil price keeps falling, if global growth continues to remain softish or uneven, if expectations of interest rate hikes in the US keep getting pushed out and expectations for cuts in Australia intensify, then borrowing costs will come down," he said.

[Related: Rate wars continue as ME Bank undercuts big four]

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