ASX – CBA cuts interest rates for new borrowers reigniting mortgage wars

Their moves on interest rates come ahead of a parliamentary grilling next Thursday, when CBA chief Matt Comyn and Westpac chief Peter King will appear before the House of Representatives standing committee on economics reviewing Australia’s four major banks. NAB’s Andrew Irvine and ANZ’s Shayne Elliot will be questioned next Friday.

Jarden banking analyst Jeff Cai said CBA was the last of the four major banks to cut interest rates for new borrowers and boost their credit growth.

“All the banks are operating by looking at both sides of the balance sheet,” Cai said. “Given they’re easing on the deposit side in terms of rates, that gives them more capacity to compete harder on the mortgage book.”

Cai said that equilibrium would reduce the impact of rate cuts for borrowers on the bank’s bottom line, and added he did not expect the fierce levels of competition seen in recent years to return.

“It will be more small increases in the mortgage competition … rather than going back to what we have seen.”

Despite the banks’ moves on interest rates for customers and markets pricing in a rate cut by December, the Reserve Bank of Australia has held the cash rate steady at 4.35 per cent since November and RBA governor Michele Bullock sought to kill off those hopes.

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After the bank board’s latest two-day meeting this month, Bullock said the board’s current thinking did not align with the financial markets’ expectations of a rate reduction at the RBA’s December meeting or earlier.

She said predictions of “near-term” cuts were overblown, even as the RBA expects economic growth to slow to just 0.9 per cent over the 12 months to June and inflation to fall to 2.8 per cent by the middle of next year.

“I understand that this is not what people want to hear. I know there are many households and small businesses that are struggling with interest rates where they are,” Bullock said this month.

“But really the best thing we can do, and I’ve said this before, the best thing we can do is to bring inflation back down to target because we can’t let inflation get away.”

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