NAB to pass on possible rates cut
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The NAB is the first major bank to promise consumers the benefit of any official rate cut. (AFP: Greg Wood, file photo)
The National Australia Bank (NAB) says it will pass on any Reserve Bank cut in interest rates next month.
NAB says a fall in short-term funding costs will allow it to move in line with a future cut by the central bank.
The recent economic downturn has led economists to forecast that the RBA will cut interest rates when it meets for its board meeting in two weeks.
NAB says it will pass on a 0.25 per cent cut to customers if the Reserve Bank reduces the official cash rate by that amount.
Some economists are forecasting the RBA will cut rates by 0.5 per cent.
NAB chief executive Ahmed Fahour says he cannot make any guarantees if that happens.
"On the off chance that they do 50 basis points we'll see how the market reacts and the money market reacts," he said.
But he has warned that the official cash rate now has little bearing on bank's interest rates because the average cost of funding their loans remains so high and it is likely to continue to remain high during the next year.
Leading the pack
The announcement makes NAB the first major bank to promise consumers the benefit of any Reserve Bank rate cut.
Other banks including Westpac, St George Bank, the ANZ and the Commonwealth Bank have all stood firm against passing on a rates cut, despite significant pressure to do so.
Their stance led to an unusually direct response from the Reserve Bank, with RBA assistant government Philip Lowe saying last week that there was "no obvious reason" why banks could not pass through any anticipated reduction in the cash rate.
In turn, the Commonwealth Bank hit back.
"I don't think we live in a communist country. We will do what is commercially appropriate and what is prudent," Commonwealth Bank chief executive Ralph Norris said.
Federal Treasurer Wayne Swan has also put pressure on the banks to give consumers some relief from any rates cut, though Federal Opposition treasury spokesman Malcolm Turnbull has ridiculed any suggestion by Mr Swan that he has any leverage of banks operating in a free market.
Today Opposition Leader Brendan Nelson said the banks could cut their rates by more than the Reserve rate and he argued they might be able to bring their rates down immediately.
"We know that banks have had to pay more for money over the last six to eight months as a result of the global liquidity crisis," he said.
"We know that but we also know their margins are extraordinarily healthy and with the coming off of pressure on the price they're paying for money I think they're in a position to pass it on now."
