Australian lenders are unlikely to pass on a full rate cut to borrowers next month as funding conditions deteriorate.
Volatile funding costs have again put pressure on Australian banks – despite the fact that they remain in substantially better shape than those in the US and UK.
Steve Weston, general manager of residential and commercial lending at Challenger Mortgage Management told Mortgage Business that the markets had priced in at least a 0.25 per cent rate cut but this may not reach borrowers.
“The question now is not whether the RBA will cut rates again in October but whether any reduction will be passed on by the banks,” he said.
Mr Weston said that between Tuesday and Friday last week the 90 day bank bill swap rate rose from 7.19 to 7.49 per cent. Yesterday it sat at 7.37 per cent.
“The cost of funding is so volatile at the moment it isn’t funny,” he said.
“In times of uncertainty banks are less inclined to lend to each other. Those with cash are sitting on it and if they do decide to lend it then they want a better rate of return”.
According to Mr Weston, how conditions play out in the United States will have a significant impact on the domestic market as more than half of local funding comes from international wholesale markets.
Congress approval of the US government’s multi-billion dollar rescue plan will boost bank confidence and help inject liquidity back into the financial system however whether this will happen is far from guaranteed.
“It’s all hinging on the United States,” he said.
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