Market pricing suggests there’s a good chance the RBA will cut rates again by early 2015 but in delivering the bumper CBA full-year cash profit of $8.68 billion, CBA CEO Ian Narev hinted that the banks might cut rates themselves.
Narev was very upbeat on the housing sector and lending for houses saying there was a lot less risk in home loan lending than other types of lending such as corporate or small business.
This means the returns on equity on offer to the banks are huge in a low-inflation environment, as the CBA’s 18.7% RoE showed.
So Narev said competition for home loans was likely to intensify.
Already three of the majors are competing fiercely in the fixed-rate home loan market with rates below 5% – a move which prompted the RBA to say last week that “Over recent months, there has been a decline in average lending rates paid.”
That’s an out-of-cycle rate cut and Narev suggested there was more to come.
“We’ve always said that the Reserve Bank rate is one input into the cost of funds, which are one factor into the pricing. You’re going to see more of that link being challenged, with different products happening, fixed versus floating, different specials here and there,” he said.
It seems even if the RBA doesn’t cut rates the banks just might deliver their own rate cut.
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