Recent rate movements outside RBA movements

As a broker, I've been closely following the recent moves by some of Australia's largest banks. Last week, several banks made headlines by announcing reductions in some of their interest rates. However, these cuts weren't uniform across the board - they affected term deposits for some banks and home loans for others.

What's particularly interesting is that these rate cuts came just days after the Reserve Bank of Australia (RBA) reiterated its stance on not rushing to lower interest rates anytime soon. This raises an important question: Why are the banks cutting rates when the RBA isn't, and what does this mean for Australian households?

Let's break it down.

First, let's look at which banks have cut rates. According to data from RateCity.com.au, since the beginning of August, 23 banks have reduced interest rates on at least one of their term deposits. This includes major players like Commonwealth Bank (CBA), NAB, and ANZ.

CBA led the charge, cutting almost all of its term deposit rates by 0.5 percentage points a week ago. NAB followed suit with similar cuts, while ANZ lowered its rates by up to 0.8 percentage points.

However, it's not all one-sided. RateCity's analysis shows that 15 banks have actually increased rates on at least one of their term deposits since August 1. In fact, some banks, including ANZ and NAB, have both cut and hiked rates on different products.

When it comes to mortgages, the picture is a bit different. Only 11 lenders have cut fixed rates, and just five have reduced their variable rates since the start of August. Westpac, for instance, cut some of its package fixed rates on Wednesday, while CBA announced cuts to both fixed and variable rates on Friday.

So why are banks adjusting their rates independently of the RBA? From my conversations with financial experts, it appears to be a reflection of global economic trends and expectations.

Articles I have read state that it could be indicative of where the global economy is heading. With the US Federal Reserve expected to start cutting rates, financial markets are adjusting accordingly. This affects the wholesale funding markets where Australian banks raise money, both domestically and globally.

In essence, the banks are pre-empting potential future rate cuts by central banks. Basically, Banks don't want to be paying too much interest on deposits that ultimately hurt their profit margins.

However, it's important to note that these rate changes only affect new customers. If you currently have a term deposit or home loan, you won't be impacted by these cuts (or hikes).

Looking ahead, the big four banks have differing predictions on when the RBA might start cutting rates. CBA and Westpac are anticipating cuts as early as late this year, possibly in November. ANZ is looking at February 2025, while NAB doesn't expect cuts until May 2025.

One thing they all agree on, though, is that the current cash rate of 4.35% is likely the peak. Despite the RBA's warnings that it won't hesitate to lift rates if needed to control inflation, the major banks seem confident we won't see further hikes.

As always in the world of finance, things can change quickly. We'll get more clarity on the RBA's thinking at its next meeting in late September. Until then, I'll be keeping a close eye on any further developments in this space.

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